My understanding of the demographic argument for this is:
Boomers are retiring. The previous few years have been boomers’ top earning and investment years, more money invested into same number of stocks → line go up. Boomers retire, gen X is smaller cohort so less money into stocks from them and more coming out from boomers selling up in retirement. Less money in the market → line go down.
So, how is this wrong? Isn’t it effectively just an argument that money supply leads asset valuations?
I am not making any prediction or advocating any particular investment strategy. I am saying people who are making those predictions and giving that advice tend to be far too confident about it, even if they are giving the best advice possible.
If there is an event that has a 10% chance of occurring, and 90 other events with a 1% chance, the 10% one is by far the best bet. That doesn’t make it the most likely outcome.
The logic isn’t wrong, but the application is very uncertain.
Boomers as a generation cover people born over a 20 year period. That means the boomer draw down of their retirement savings is something that is going to happen over decades. The oldest boomers will draw down their savings over about 25 years, and when they die the youngest Boomers will have just recently retired. This whole process of American boomers selling off their stocks is going to take a half a century. A lot of other stuff impacting stock prices is going to happen over the same period.
I dunno. The other side of this debate are like NFT memelords that don’t understand the absolute most basic concept of where stock returns come from.
I have a graduate degree in economics and taught at a private university for 3 years.
The people who think stonk returns are inevitable because stonks only go up are the only smart people!
Then why don’t you understand discounted cash flow?
Yeah, I also have degrees in Finance and Economics, but people assume when you dare to posit any argument that goes against consensus wisdom that you automatically don’t know anything about the topic.
I do? It doesn’t apply to today’s stonks for the most part. Tesla couldn’t become almost the most valuable company on earth if it did.
Like dude you went to a ivy league school, are an executive at a bank and don’t understand what has been happening the last few years. So you rage post about how ridiculous it is. You aren’t the smart and right person on all this. You remind me of my mom worried i would lose it all playing poker 18 years ago.
He taught at a RADICAL SOCIALIST university, ldo.
The most valuable automotive company in history that is worth more than the next ten combined doesn’t know how to paint or put doors on a car, something that other makers figured out forty years ago. Somebody give me the fundamentals on that.
It’s obviously explained by discounted cash flow! How could you not know that!
The proposition that (many) companies have a positive valuation based on fundamentals is different from the proposition that the price of any particular company aligns with fundamentals.
If people are exchanging equities from their 401ks for cash in their savings account, are they selling capital? Or is it the combined “withdraw from 401k and consume” that you have in mind?
I mean, I guess you can tell a story where there’s a small shift in the aggregate relative demand for less risky assets, but I’ll be really surprised if there turns out to be any measurable effect of boomer retirements on stock prices.
The bolded seems true, but unhelpful because I think one group of people believes that “what buyers are willing to pay” is predominately (especially when you weight by the amount of investable assets of each buyer) based on things like expected future cash flows, while another group of peope believe that “what buyers are willing to pay” is predominately based on psychology and gambling.
I dunno. I have strong feelings about all of this, but I also don’t want to be responsible for a bunch of bickering (and this back and forth seems like it’s edging towards hostile rather than good-natured) so I’ll just say it’ll be interesting to see what happens when boomers retire, and I hope there’s enough left in my accounts to afford good beer.
Boomers have been retiring for over a decade at this point.
I mean, lol @ TSLA forever and always, but they are producing a tangible product. Unlike the Bitcoin mining facilities that are factories producing…. Literally nothing.
Is there any difference between doing this and selling the stock in the retirement acct, taking the RMD and on the same day buying the same amount of that stock in your taxable account?
Yeah we are closer to the last boomer retiring than the first.
Psychopathic fascists are at least potentially different from psychopathic capitalists!
Sure, but most of that huge global fanbase doesn’t care about trading cards. I don’t know the size of the card collecting community vs NFTs, and haven’t checked. I am just making the point that I think conceptually the two things are similar. They hold value because a group of people values them, most are going to end up ~worthless, some are going to end up/remain super valuable.
Sure but limiting sales like that would be super unpopular as opposed to allowing them to be transferred over a number of networks and then collecting the royalty regardless when it’s transferred on the blockchain.
I wasn’t aware of that, and I’m certain my father isn’t either. I’ll let him know. I’m going to assume most Boomers aren’t aware of it, and I would expect that most of them will need to liquidate at least some significant portion of their holdings to live off of.
In reality it’s some combination of both. In the long run, the value of a stock should move towards its fundamental value. In the short-term, it can fluctuate wildly due to inefficiencies, psychology, gambling, etc.
Essentially if the money Boomers are pulling out of the market exceeds the money that younger generations are putting in, then the question becomes how much do institutional investors and the uber-wealthy have to pump in to take advantage of that? If that last number is greater than the gap between the first two, it won’t be an issue. Even if that’s the case, I have a feeling we’ll see some very short-term fluctuations near the RMD dates (12/31 and to a lesser degree 4/1).
You’re trying to refute the argument that inflows/outflows are the only thing that moves prices, but nobody is saying that. They’re a factor.
Looks like the drag should be in the neighborhood of 0.35% to 0.5% once this ramps up, it should never get to more than like 1% drag. But that’s still a decent chunk of annual returns, if you’re expecting 8-10%. If a big chunk of it hits on one day/week, I’m curious how the algos react. I’m not saying it’s going to trigger a flash crash the first couple times, but I wouldn’t be surprised if it compounded itself a bit and caused more loss than just the 0.35% or whatever.
There’s also going to be the dynamic of millennials inheriting money from Boomers who die, which in many cases will be liquidated so that they can finally buy a house. In other cases it will be liquidated because the S&P isn’t cool, you know what’s cool? GME to the moon! I’m exaggerating but I think the dynamics over the next 15-20 years as the Boomers age into retirement, draw down retirement accounts, pass on money to their kids, die, and millennials re-allocate their inheritances is going to lead to some level of inefficiency/chaos, which will create opportunities. But it’s extremely hard to predict. I find it interesting to think about/guess about.
As long as Unstuck figures it out 2 weeks ahead of the rest of the public as we usually do as a community, we should be able to do quite well investing around them.
Today I set up a spreadsheet to look at my track record investing and confirm that I’ve beaten the market overall, had I put the same amount into the S&P I put into other stocks. Had I gone 100% S&P 0% cash/bonds, I would have done better, but that was never a serious option for me unless the crash got more severe in March 2020. The conclusion of this spreadsheet was that I need to make sure not to under-allocate into stocks.
I doubt we’ll ever be able to prove or disprove anything, unless it causes some kind of mini flash crash each year. I don’t see how anyone could ever prove that like a 0.35% to 1% annual drag on returns was caused by XYZ instead of ABC.