3 Shocking Ways Millennials are Killing the Stock Market

Pay attention to attitudes among millennials and Gen Z if you are expecting a rebound after the next crash. These are not small factors. They could have major impact for years to come.

1. Wealthy Millennials are shunning investing in stocks. And can you blame them? This generation grew up during the dot com bust of 2000 and then the housing crash of 2008. They have little trust in the stock market to make or keep them wealthy. They’ve seen too much wealth destroyed that way. Where older generations have around 55% of their portfolios in stocks, wealthy millennials hold 25% in stocks, according to a Bank of America survey of 1,052 people with investable assets of over $3 million. This study compares generational attitudes about wealth and investing. What do high net-worth millennials and Gen Z like instead? Crypto! (29%) Art collections! (66%) ESG rated companies! (24%) Mind you, they stand to inherit some $73 TRILLION through 2045. That is TRILLIONS of dollars in wealth their parents are holding in stocks, that according to these trends, they plan to liquidate and put in crypto and art over the coming years. Grrreat…
   
   
2. Quiet Quitting is killing corporations from within. Have you heard of “quiet quitting?” It’s a rising trend of drawing paychecks but contributing only the bare minimum required at work. No putting in extra hours, late nights or weekends to stand out and go for that raise. Just doing enough to not get fired. And why not? The labor market is tight. It’s easy to find another job but nearly impossible to replace a worker. You don’t do anything egregiously bad. You just don’t do anything all that great either. You’re phoning it in. Coasting. You’re adequate. Not stellar. According to this Generation Labs study, this is an “appealing” concept to 82% of millennials and Gen Z.  No wonder productivity is down.  If underlying value of a company matters to investors anymore (an open question) this trend away from personal ambition and hard work is a terrible signal. Companies are only as good as the people working for them. The future is looking mediocre.
   
   

3. Millennials are driving the ESG racket. Millennials and Gen Z are the most likely to seek out (ie – fall for) environmental, social and (corporate) governance (ESG) ratings for investments. Ed Luo of Armchair Investing describes the phenomena on Medium:

“It is a pillar of false virtue, where 20- to 40-year-olds buy and invest in ESG funds to ease their conscience. ESG investing is pure optics built upon our bestial tendencies and phony moralities — the very defining case of doing something to look good without actually doing anything. Perhaps we are driven by guilt? By our new world order governed by social media and our online personas? People live these false lives and proclaim support for ESG to enhance this artificial imagery of woke leftist goodwill.”

One major clue the whole thing is a scam? They claim to care about environmental factors and green energy, BUT S&P removed Tesla from the index, and put ExxonMobil in the top 100.  Do ESG investors really know what they are getting? Luo points out several myths about ESG. It’s not a good way to measure “goodness” of a company, ESG does NOT help society and these companies do NOT earn higher returns. It is simply a way to virtue signal through wealth. But younger investors especially are drawn to these feel-good, "social credit" scores for companies. What could possibly go wrong with investors continuing to ignore fundamentals?

It sure seems that younger generations lived through speculative booms and busts and learned a whole lot of wrong lessons. It’s not the stock market per se that was the problem – it was the speculative malinvestment. So shunning stocks for even more speculative instruments like art, crypto and sham ESG ratings seems like doubling down…

The next generations are about to inherit the wealth of the baby boomers and potentially light it on fire in some spectacular ways...

There is good news though.

Because they appreciate the appeal of alternative assets, younger generations agree with older generations about tangible assets like real estate. That seems healthy.

The best news is that one important, and very sound asset class is very much on millennials' radar. What tangible, alternative asset has high liquidity and low cost of ownership (vs real estate?) One that lacks the third party risk of woke ratings firms and corporations? What is more tangible than crypto and offers even better privacy?

Precious metals, of course!

And, some 17% of millennials own at least SOME precious metals and consider it a desirable niche asset according to this survey  So there seems to be a healthy appreciation for the value and potential of precious metals among the young.

For all their peculiar investing and economic ideas, Millennials seem to respect gold and silver for all the obvious reasons. You should be watching for that percentage to increase over time as more is learned and revealed about other asset classes millennials are drawn to - and their vulnerabilities. As this generation becomes more mature, history suggests they will also adjust their risk tolerance. Precious metals could be a big winner in that journey as they offer the best of all worlds, with the best risk/benefit calculation based on the values of younger generations.

But for the stock market? That sucking sound is the sound of $73 trillion in wealth slowing circling the millennial drain - out of stocks, and into other things.