Millennials Invest Like r-Strategist Grasshoppers

An interesting article sent by a reader:

Alistair Owen pours most of his paycheck into what he calls a travel-and-lifestyle fund.

“I’m not saving up to buy anything,” said the 28-year-old engineer, who shares a rented apartment with two flatmates in south London. “I prefer to go out for dinner at a nice place, pay a round at the pub or explore a new area of the world. I feel like I would be losing out on living if I chose to own stuff instead.”

The stock market is starting to reflect his priorities and those of his generation — the millennials, those born between 1980 and 2000. Leisure and travel-related stocks, including pubs, airlines and pizza restaurants, have trumped retailers since consumer confidence picked up following the financial crisis. For U.S. and European indexes tracking the industries, the outperformance just reached the highest since at least 2011…

A survey by market-research firm Harris Poll and Eventbrite Inc., an online marketplace for ticket sales, showed 78 percent of millennials would rather pay for an experience than material goods. That compares with 59 percent for baby boomers. Some 82 percent of millennials said they went to a live event in the past year — concerts and festivals — and 72 percent said they plan to increase spending on such outings.

Andrew Oswald, an economics professor at Britain’s University of Warwick in Coventry, says today’s young consumers feel like they own enough already. With their material desires almost completely exhausted, millennials need alternative roads to satisfaction, he says, referring to research by Thomas Gilovich, a psychology professor at Cornell University.

“It’s now experiences that people are short on, not items,” says Oswald, whose research focuses on what he calls the economics of happiness.

Purchasing material goods is preparation. It is establishing security in an atmosphere of angst. If you know the shortage is coming, you stock up to assuage your fear of running out. If no shortage is forthcoming, then the money in your bank account becomes a source of easy pleasure, and little more.

To me, this grasshopper-spending pattern describes a spending pattern exactly opposite to that of Texas Arcane at Vault-Co. Given the choice, Tex would forgo the fancy vacation in favor of excavating a little deeper for the underground vault he intends to use to protect his family from the madness of the Apocalypse overhead. Others will spend excess funds locating the optimum survival location. Still others dream of a fortified welding/machining/metalworking shop in preparation for the day when nobody can afford new tools, and those who can fix old tools will be in a good bartering position. Those are the forward-looking psychologies which survive harshness.

People like Tex have functional amygdalae. When they look out on the world, their amygdalae flag danger signs, focus their brain on the danger, fire off aversive stimulus to make them uncomfortable. Their brains then try to assuage that discomfort by performing actions designed to blunt the bad aspects of the foreboding circumstances they see.

These grasshoppers, spending all their money as it comes in on simple pleasures like dining out, can do that happily because the parts of their brains designed to see bad are totally shut off.

So why are so many Millennials still exhibiting such r-psychologies? I have to imagine it is the national debt. When George W Bush took office we were $3 trillion in debt. When Obama leaves office, that number will be $20 Trillion. That is $17 Trillion conjured out of thin air and given to the populace. That money is sprinkled over the entire financial system, but like rain falling on a mountain valley, it quickly flows into established channels, and aggregates together as it moves on. Homeless people spend it on alcohol at liquor stores, and basic food at established food shops, and for them it is gone. Those businesses pass the money to suppliers, utilities, and shipping. Those companies pass it on to wholesalers, fuel supply, and so on. Eventually that stream of money is gone from the people it was first given too, and begins flowing through established channels, where very powerful and wealthy entities bleed some off whenever it passes by them.

In short, in those areas (like the financial/banking/investing services quoted in the article), they have seen literally trillions of dollars, drawn from thin air, and dropped in their laps. That is a lot of money flowing to a very small world.

Additionally, so far every prognostication of doom has proven false. Even in 2008, as Armageddon was upon us, the government simply conjured more money and passed it around to stave off the danger. In all of these people’s lives, there have never been consequences. As a result, their brain has no idea that consequences are not just possible – in the long term they are unavoidable.

This might open up a strategy for investing. When K is about to take hold, shorting the very r-stocks which are presently thriving would be a viable strategy, because as the nation turns K, luxuries will not be as desirable as simple necessities that will keep you alive.

Apocalypse – a money making opportunity.