After 34 years in the stock market, Montreal-based broker Rick Hart says he’s seen it all. ‘And sometimes I feel like I haven’t seen anything, yet,’ he muses. ‘This isn’t the same business that it was 20, 15 – even ten years ago.’
What’s happening now has Hart and his colleagues scratching their heads. Stock market mania has gripped North America, and the lion’s share of Hart’s business is coming from the generation of flower power and love-beads – children of the baby boom who have traded in their peace symbols for ticker symbols. ‘There is definitely a correlation between generation and investing,’ says Hart. ‘They’re very aware, very well informed and the stock market is a place they want to be.’
It’s part of a phenomenon documented by David Cork, an investment adviser for ScotiaMcLeod in Ottawa, in his 1997 book The Pig and the Python. The baby boomers – that generation born in the two decades after World War II – are moving through the North American economy like proverbial swine through the serpent’s digestive track. By its sheer size alone, it has had a profound impact on investments and the economy as a whole.
‘We have to acknowledge that the phenomenon exists and that things that happen unexpectedly should be expected,’ Cork says. ‘It’s like the Gerber baby food phenomenon. Sales went crazy in the 1940s and 1950s and then got whacked in the 1960s when we ran out of babies.’
Where the baby boom is concerned, everything they consider important becomes important, Cork says. There’s a ‘group mind’ at work in the economy; the largest single demographic cohort is moving in lockstep, determining the economic priorities of North America.
‘Every commodity that the boomers approach has to expand because the pig is moving through the python,’ Cork says. ‘Suddenly there are drugs on the market like Viagra. It’s Gerber baby food all over again, and it’s the early warning system of what boomers can do even on a product-by-product basis.’
What baby boomers find important today is the stock market, notes Jeannine Fox, a Houston-based financial advisor and author of The Baby Boomer’s Guide to Prosperity. ‘They’ve collected their houses and cars and things,’ she says. ‘Now they want something that they can’t really name, something intangible. They’re looking for it on the stock market.’
Indeed, the postwar generation is going through the same save-and-invest cycle as previous generations. What’s different this time is the sheer size of the baby boom cohort and its habit of acting as a single entity. ‘We’re a very self-conscious generation, with a lot of generational identity,’ says Doug Owram, academic vice president of the University of Alberta in Edmonton and author of Born at the Right Time, a seminal book on baby boom culture.
‘Two things intersect,’ he says. ‘Investment is an age thing – it comes up at a certain point in your life cycle. And the first half of the baby boom moved very well from school to jobs. They made a very smooth transition to a point where they were earning money, and they could start the process of acquisition more quickly than earlier or later generations.’
Buying the future
With their mortgages paid off and inheritances from passing parents, baby boomers have even more cash on hand, Owram says. And after two decades of acquisition, the generation that has everything buys the future.
‘Now they have a lot of money and things, they’re going through almost a spiritual revival,’ Fox says. ‘Baby boomers are really starting to look at their money not for what it can buy them, but for what it can do for them. I’m seeing a real search for purpose.’
Though Fox sees little evidence that the baby boom generation plans to retire in the traditional sense, she believes that, as its oldest members push into their mid-50s, they are looking for ways to leverage a lifetime of earnings to enable a change of life – or at least satisfy the needs of a mid-life crisis.
‘There’s an overwhelming urge to feel that there’s a purpose to their lives, and their money is being used to further those goals,’ Fox says. ‘They’ve been planning for a future that requires some kind of financial independence above and beyond pensions and savings.’
Those plans are the focus of Cork’s new book, When the Pig goes to Market. By understanding their own economic influence, he writes, baby boomers can set a comfortable stage for their own retirement – or quasi-retirement. ‘You’d better not make buying lottery tickets your major form of retirement planning,’ he warns. ‘And don’t count on double-digit gains in the stock market either. Be honest with yourself and recognize your own shortcomings. Begin by educating yourself on the ways of the market.’
Indeed, the most significant ‘way’ of the market is the demographic dynamic exemplified by the baby boom pig. ‘There’s no magic to this,’ Cork says. ‘The trick, as Peter Drucker said, is to predict things that have already happened. You can do very well by understanding what the biggest and most affluent demographic cohort likes to do with its money and riding it.’
In effect, the baby boom is behind the stock market boom – making it a boom-boom. Canny investors can surf the crest of that wave to investing success. The only question is, how long will the boom-boom last?
‘I don’t think I’d want to be in the stock market in 15 years,’ Owram says. ‘I think we’ll see the mass of baby boomers move from equity investments to guaranteed income certificate-type funds. And a lot of money is going to start coming out to support their old age.’
Busy bees
Though Cork is more sanguine, he’s quick to point out that financial boom times don’t last forever. The same demographic dynamic that fueled the expanding stock market will ultimately bring it down. ‘We’ll actually see the decline in 20 years,’ Cork says. ‘On average, Canadians start really using their money at the age of 68. We’re about 26 years away from that on the baby boom’s median age.’
For all of their hive-like financial behavior, however, Fox worries that many baby boomers will be unprepared for the inevitable downturn. ‘I’m afraid that a lot of boomers think that the markets will always go up,’ she says. ‘I’ve seen some put 90-100 per cent of their investment portfolio in the market. There’s been so much hype that a lot of people are taking a lot of chances.’
Cork concedes that there remain a few wild cards, like the potential China has to emerge as a first-rank player in the global economy. However, he’s confident that his theory is sound and ‘if you want to look at positives, they’re everywhere.’
Unfortunately, nothing in economics is ever that clear-cut, and where Cork has found a well-defined demographic dynamic, Derek Holt, senior economist at the Royal Bank in Toronto, sees wishful thinking and generational narcissism. Far from being the primum mobile of the superheated investment economy, the baby boomers are simply imposing the pattern of their own reflection in economic entropy.
‘Sure, you can’t have a 9.8 mn boomer cohort move through the Canadian economy without it having some influence, but you have to ask what kind of influence,’ Holt says. ‘You can have all sorts of charts that show a correlation between age and the stock market. But you can also pick just about any other randomly selected variable that shows a correlation with the stock market. You can find whatever you’re looking for, and a lot of baby boomers are looking for themselves.’
Financial ecology
Holt sees a complex cyclical process at work. Interest rates have fallen to the levels they were at in the 1950s and 1960s, the profit cycle in the 1990s is up and, from a corporate perspective, the market has been fueled by the last decade’s ‘huge M&A bill’ and equity buy-backs. If the baby boom demographic is a factor at all, he contends, it is a relatively insignificant one in a vastly complex financial ecology.
‘When you think about it, if it’s really as simple as doing age-based correlations and extrapolations, then that’s an insult to all the uncertainty that’s sweeping the market,’ Holt says. ‘If it was that simple, the financial markets would have keyed onto it and priced the trend into the market.’
Indeed, at the end of the day, Holt says Cork and other proponents of the demographic influence of baby boomers, don’t really have any hard numbers to support their position. ‘Holt says all the baby boom evidence is anecdotal,’ Cork notes. ‘But what other kind of evidence is there? He says it’s a coincidence, but it’s some coincidence when things happen in the economy at exactly the point that the baby boomers are doing them.’
The problem, says Holt, is that events in the economy don’t coincide with the baby boom’s life cycle, so even by Cork’s line of reasoning, the demographic argument doesn’t hold up. Holt points to parallels between the US and economies in Asia and Europe that never experienced the post-war baby boom.
Most telling of all, he says, is that if the demographic argument was valid, then the Canadian and US economies would be in lockstep. ‘Compare Canada and the US,’ Holt says. ‘The age structures are almost identical, but when you compare economic measures in the two countries, the experiences have been vastly different. US equity markets have blown away Canadian markets, and there’s no comparison in real estate.’
Hart is unconvinced. A disproportionate number of his clients fall into Cork’s baby boomer cohort – too many for him to believe in coincidences. ‘A lot has happened in the market, that’s for sure,’ he says. ‘It has opened up a lot, there’s more information about how to invest than before, and the costs have come down. But there had to be people out there with the wealth and inclination to take advantage of all that.’
