A pretty interesting chart from Fundstrat, a small advisory firm run by Thomas Lee that is well known for being extremely active in the media, and a recent discussion on CNBC that was covered by Business Insider prompted an incredibly bullish market view, seeing stocks tripling by 2030.
Instead of addressing his thesis, I want to zoom in on a particular demographic point Lee used to make his case, because it is very easily misunderstood.
Here Lee makes the “demographics is destiny” argument that is not very novel in the world of finance. Arguments about investing according to demographic changes fill the history of finance, and while the chart makes a very convincing story, actually translating this insight into actionable investing strategy is not hard.
Let’s demonstrate this by going back to the GenX peak detailed in the chart above, which begins around 2016 and ended in 2020. Investors who knew the demographic peak was coming would be tempted to sell and buy in later.
The problem with this strategy is that it does not work. If we look at the S&P 500 with dividends included, we see that an investor who sold to avoid the cataclysmic demographic turn and its concomitant selloff would have to buy in at a higher price–and this is true even if one bought in a little earlier in 2020 when markets were reeling from the pandemic.
The Boomer peak tells a similar story.
Again, avoiding this demographic dropoff, arguably the worst in American history, did not help. Waiting for the lowest low during the post-dot com bubble and crash wouldn’t have worked either.
Simply selling at a demographic turn does not appear to work. We could replicate this underperformance with the Silent Generation and the Greatest Generation, so the demographic story we see in this chart is not actionable for deciding entry/exit points.
Is it actionable for some other investment decision? I am simply looking at the trendline here, but rates of change, derivatives based on variance, and other approaches to financial analysis could be more heavily influenced by Lee’s perspective. The general pattern on the chart is visible to the eye–does that mean it can make an investor money? The answer to that question is not always yes, but sometimes it is; unfortunately, answering it means analyzing any financial analysis from many perspectives. Using it simply to decide when to buy and sell will more often than not turn into a losing strategy.