The nations’ largest retail chains made their fortunes by appealing to the human desire for a bargain. Entering the store, the first items you see are usually the ones on sale. And people rush to buy them. Wall Street has a sale rack too but often many investors try to avoid it, oddly preferring to seek out those hot stocks that are most expensive.
I saw an interview by investment personality Jim Cramer on the topic of the new millennial investors that I found to be quite inciteful. He said, “If you pay no attention to the Fed or the bond market, which is pretty much the status of the newer investors, and you buy every dip, you can make out like a bandit…Those who have been around forever don’t like it, but ignorance is bliss and more profitable than intelligence.”
I am not sure about ignorance being more profitable than intelligence, but what Jim had noticed was that younger investors were ignoring all the market noise, and just doing what made sense. They were looking for bargains. Perhaps they learned this while shopping with a parent at the local big box store. There is a solid principle here that more “educated” investors might learn from. For example, in 2020 the stock market averages were driven up by relatively few high-tech stocks, while more traditional companies struggled. The market averages kept climbing as those few stocks attracted more investors, perhaps fearing they were missing out. All the while many of the long-standing traditional stocks were left behind, quietly becoming cheaper compared to their soaring high-tech counterparts. Younger investors in internet chat rooms began talking about, and then slowly buying up some of those overlooked issues.
Now in 2021 we have watched the opposite happen as the high-tech sector fell while the rest of the market has played catch up. This week the Dow Jones average is flirting with another record high, yet many of last year’s big hitters have been moving downward. What has happened? It is what market followers call a “rotation” which is when money rotates out of one area of investing and into another. I have often said money does not disappear, it just moves. As this rotation has occurred many younger investors who were picking up bargains a few months ago find themselves sitting on top of big winners. So, is ignorance bliss? I suppose it would be more accurate to say that sometimes too much information gets in the way of good common sense. The millennials were just being good bargain hunters.
Market rotations can lead to bargain opportunities for investors, especially these days when they tend to happen more frequently and with greater magnitude. We are already seeing some of last years’ highflyers starting to appear on this years’ Wall Street bargain rack. Maybe we should look at investing more like a big box store. When something is on sale, take some time and give it a look. The younger generation certainly will.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
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