Risk-Takers And Tattoo-Haters

Tyler Durden's picture




 

One of the great existential debates about U.S. equities is essentially demographic in nature.  Nic Colas, of ConvergEx, asks the question, will retiring Baby Boomers cash out of stocks in the coming years, leaving lower valuations in their wake?  At least one recent Fed paper pointed to an 8x earnings multiple for stocks – down from 14x currently – in 2025, all due to the changing face (and age) of the typical investor.  But all this doom and gloom only fits if every generation has a similar risk tolerance.  If younger cohorts – dubbed Generation X and “Next” – have higher risk thresholds, they may actually buy more equities than their parents, alleviating the demographic time bomb behind that dire Fed prediction.  Getting a fix on how these nascent investors will evaluate the risk-return tradeoff is tough; they still don’t have much money to put to work.  Still, some signs exist.  Believe it or not, a third of young Americans have tattoos, an acknowledged sign of risk-loving behavior.  And if you think that is just bad decision-making, consider the business rock-stars of the under-30 set.  This latest wave of billionaires are all outsized risk takers, and role models to their generation.  Stocks may not be dead just yet.

 

Nic Colas, ConvergEx; Tattoo You, But Not Me

One of the most powerful bearish arguments against U.S. stocks is not another European debt crisis or a collapse of confidence in the Federal Reserve or a hard landing it China; it is demographics.  Simply put:

  • As Baby Boomers retire over the next 20 years they will slowly but surely shift their asset allocations from equities to fixed income instruments.  The resultant drain of capital will compress valuation multiples, regardless of the level of interest rates or the growth in corporate earnings.
  • I should note that this theory is pretty far from the mainstream, but that hasn’t prevented inherently conservative organizations like the Federal Reserve from developing forecast models to project future Price/Earnings multiples based on the age of the retail investor base.  The reason it strays from financial orthodoxy is because you don’t factor in the demographics of a buyer when you do a discounted cash flow.  Even if the original purchaser doesn’t live to see the final payment of a bond coupon, for example, they can still sell it to someone who will.
  • The San Francisco Fed did precisely this demographics-based analysis last near, calling for a trough P/E multiple of 8.3x in 2025 for U.S. stocks.  That essentially means that U.S. corporate earnings could grow 5-6% per year for the next 13 years and domestic stocks would be no higher than they are today.  See here for the entire text: http://www.frbsf.org/publications/economics/letter/2011/el2011-26.html.

The problem with this analysis is that it assumes every generation has a similar risk tolerance profile.  The children of the Baby Boom (1946-1964) – Generation X, born from 1964 to 1982 - are assumed to have the same risk threshold as their parents.  And what is being called “Generation Next” – those born from 1983 onwards – should have the same risk profile as their parents and grandparents.  If these future generations have greater appetites for risk, then the Fed analysis is too pessimistic.  They will own more stocks than the prior generations, thereby diffusing some of the demographic time bomb of Baby Boomer stock sales.  And, of course, if they are more risk-averse then the Fed might be too optimistic.

Searching through a Pew Research Center report from 2007 on “Gen Next,” an odd fact caught my eye – more than a third of the respondents reporting having a tattoo.  Yes, there is a lot of other information in the notes about this survey (see here: http://www.people-press.org/2007/01/09/a-portrait-of-generation-next/).  But seriously – a third of people from the ages of 18-25 are inked up?  That’s a lot more interesting than the fact that this cohort wants to get rich, thinks very little about religion, or thinks that government does a good job (all of which are actually conclusions of the study, by the way).

Now, if you happen to have a tattoo (or two, or three), don’t take this the wrong way, but… tattoos are a highly reliable indicator of risky behavior.  There are numerous studies in well regarded social sciences publications (see here:  http://www.sciencedirect.com/science/article/pii/S089932890100061X, and here: http://www.sciencedirect.com/science/article/pii/S1054139X02004469, and here http://www.jfponline.com/Pages.asp?AID=4762 ).  OK, the last one is really more about body piercing, but the idea is the same.  Teenagers and young adults with tattoos are significantly more likely to engage in risky behaviors such as intravenous drug use, risky sex, and smoking.  There is, of course, a big ‘Correlation/causation” problem here.  Do risk-loving young people cluster around the tattoo parlor because they see it as adventuresome?  Or do they simply get a tattoo as a matter of social solidarity with their like-minded friends?  Hard to know.  But take one look at the Google Trends data for the number of people searching the phrase “Get a tattoo” – we’ve included the chart below.  As you might guess, it is essentially straight up and to the right.

 

That Google data also reveals some unexpected information about where these tattoo searchers reside.  It is not in New York or Los Angeles, which is where I expected to see the majority of the pings.  Nope – the top state for tattoo searches is South Caroline, followed by Iowa, Oklahoma, North Carolina, and Nevada.  By city, Las Vegas is #1, followed by Charlotte and San Antonio.  NYC is a distance 7th.  Bottom line – tattooing is not a bicoastal beatnik/rebel thing. It is an American as hot dogs and apple pie.  Or a nicely inked “Mom” on your upper arm.

 

While this might seem a frivolous exercise, I think the tattoo anecdote does yield something useful in the discussion about risk tolerances by generation.  OK, if you want something boring, consider how every generation finds their new billionaire.

Ancient: Henry Ford.  Build a huge company in the 1920s. take it public in the 1950s.

Old School: Warren Buffett, investor. Focus on value for the long term.  Don’t worry too much about any 10 years period of returns.

Baby Boomer: Bill Gates. Build a dominant software platform, grow with the industry.  Don’t change too much one you get in the lead.

Generation Next: Mark Zuckerberg.  Build something, retain all the control you can, only go public when the regulators say you have to.  Change stuff all the time.

To my mind, both Generation X and Next have some distinct gearing to higher risk tolerances relative to their predecessors.  It’s not just the tattoos, of course.  It is the desire to work at the “Right” startup if you are a top-flight computer science grad rather punch a clock at a larger company. Or start your own business in college, as several notable tech business stars did.  How and if this translates into greater (or lesser) levels of equity ownership remains to be seen, of course.  But the demographic destiny of U.S. stocks isn’t as preordained as the most bearish analyses would indicate. 

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Tue, 04/17/2012 - 23:46 | 2353602 Midas
Midas's picture

I wouldn't plan on selling too many stocks to the unemployed.

Wed, 04/18/2012 - 00:29 | 2353705 vast-dom
vast-dom's picture

tattooed unemployed. this is one of the least intelligent articles of late. why would you, if you THINK ABOUT IT, want to get stuck with one image on your body for the rest of your life (laser removal is a great stock tip btw)? that's like picking one stock and one stock only and/or a static fixed portfoilio that you can only add to. article is retarded. 

Wed, 04/18/2012 - 02:15 | 2353857 12ToothAssassin
12ToothAssassin's picture

Interesting take in the article but its hard to buy stocks when your un or underemployed, living at home and have a mountain of student debt.

Next.

Wed, 04/18/2012 - 02:52 | 2353919 boiltherich
boiltherich's picture

What's next?  Meth futures? 

Fri, 04/20/2012 - 00:12 | 2360324 h3m1ngw4y
h3m1ngw4y's picture

all you guys negative about tatoos prove the point of the article very well...

this "tatoo generation" is so far off your frame of reference, we really dont

posess any insight in their risk behavior at all.

Fri, 04/20/2012 - 00:15 | 2360326 h3m1ngw4y
h3m1ngw4y's picture

and those of you complaining about their behavior forget

who raised this generation ;-)

every society gets the children it deserves, that is true since babylonian times

Wed, 04/18/2012 - 06:39 | 2354093 bank guy in Brussels
bank guy in Brussels's picture

Another really absurd aspect of this article, is the example of three living 'entrepreneurial role models' - who all turn out to be people deeply connected with the government, CIA and American political mafia - not 'risk-takers' but all people with the US political mafia backing them.

Warren Buffett - father was a US Congressman, member of political establishment, Buffett still making billions playing political games as part of team America ... when the 11 Sept 2001 twin towers fell, G W Bush immediately flew out to Omaha to celebrate with ... Warren Buffett

Bill Gates - father was a member of the US lawyer political mafia Bogle Gates law firm, a fact usually hidden about him, Bogle Gates being deep in US political sh*t going back to the Kennedy assassination ... connection to the US legal mafia a big help to early Microsoft in dealing with 'competitors' ....

Mark Zuckerberg - Zionist from Harvard where the CIA does its recruiting, Facebook set up to dominate the web as a CIA company, set up with CIA funds, artificially pumped up into dominance by the CIA's Google. Zuckerberg is another CIA dude, like the other possible 'candidates' -

Arch-Zionist internet hoaxter and criminal Jimmy 'Jimbo' Wales, posing as the 'founder' of the CIA's Wikipedia, after his previous stint as a pornography meister, Wales still involved in violating children as well as spreading lies to murder Muslims and political dissidents.

Larry Page and Sergey Brin, arch-Zionists, backed with CIA seed money in the censoring, murderous, global-internet-control machine Google Inc.

'Risk-taking entrepreneurs' - ha!

The CIA funding at the origin of Facebook -

« ... funding into Facebook ($US12.7 million) came from venture capital firm Accel Partners. Its manager James Breyer ... served on the board ... of In-Q-Tel, a venture capital firm established by the Central Intelligence Agency in 1999. One of the company's key areas of expertise are in "data mining technologies". »

http://adventofdeception.com/facebook-ciacover-nwo-agenda/

Quite funny - 'satire' but truthful - Onion News Report on the CIA's Facebook project:
http://www.youtube.com/watch?v=cqggW08BWO0

The CIA's main internet tool, Google Inc. - Here is Google's censoring of an important political refugee from the US in Belgium (whose avatar I use as a way of honouring him) - a Sachs unconnected with Goldman Sachs:

Live Photo: Google Inc. Caught Censoring EU Search Results (for USA - CIA)
Google Internet Censorship - Censure d'Internet par Google - Internet censuur door Google
http://www.flickr.com/photos/22325431@N05/6100668211/in/photostream

'Ex-Agent: CIA Seed Money Helped Launch Google', retired intelligence agent Robert David Steele interviewed by Paul Joseph Watson, and speaking of the CIA's Dr Rick Steinheiser and his connections with Google:
http://www.infowars.com/articles/bb/google_cia_seed_money_launched_googl...

Current case: Wikipedia and Google in the attack on Europe, trying to murder European citizens criticising the USA:
Report to the EU Parliament and the Commission of the European Union
Anti-Competition Crimes of EU Internet Monopoly Google Inc. (with CIA) and Wikipedia (with CIA), to Erase EU Journalism, to Slander and Murder EU - Polish Citizen, Writer, Journalist,  Non-Zionist Jew
http://www.indymedia.nl/nl/2011/07/77181.shtml

Wed, 04/18/2012 - 08:26 | 2354264 Bicycle Repairman
Bicycle Repairman's picture

Jeez, Bank Guy, you're bursting my bubble.

Wed, 04/18/2012 - 10:17 | 2354692 Mikehy
Mikehy's picture

yeah... so.... that was weird.

Wed, 04/18/2012 - 01:05 | 2353773 AustriAnnie
AustriAnnie's picture

to the unemployed with student loan debt who are on food stamps and have parents with an underwater mortgage who will need every penny their kids will earn in order to buy the groceries and medical care that the entitlement programs won't cover?

oh, yeah, those unemployed!  of course.  they are going to save us.  that was the original plan after all, wasn't it?  Status quo to infinity?

 

Wed, 04/18/2012 - 02:05 | 2353856 Banksters
Banksters's picture

Tattoos are a sign of servitude.   Only the brain dead do what the crowd does.

Wed, 04/18/2012 - 10:44 | 2354759 Stuck on Zero
Stuck on Zero's picture

By getting tattoos like everyone else they are asserting their independence.  lol.

Tue, 04/17/2012 - 23:46 | 2353603 CURWAR2012
CURWAR2012's picture

This just tells me that the riots to come when the stock markets collapse and economic activity plunges will be much more brutal. I was always warned not to fight someone with a tattoo. Now I am scared to death. I'll need a pit bull on my property.

Wed, 04/18/2012 - 01:32 | 2353823 Kprime
Kprime's picture

Get your pit bull tatooed, LOL

Tue, 04/17/2012 - 23:50 | 2353614 Koffieshop
Koffieshop's picture

I feel like this guy is trying to throw sand in my eyes.

The baby-boomer demographics problem is fundamentally not about money, risk, or stocks. It's about the ratio of people paying into the system versus the people living off the system.

Saying all will be well if the younger generation will take more risk is... well... a bit shortsighted....

Wed, 04/18/2012 - 00:19 | 2353688 Agent P
Agent P's picture

The scariest part about what you just said is that the vast majority of boomers are still on the "paying in" side of the equation, and look how well we're doing now.

Tue, 04/17/2012 - 23:58 | 2353615 Cursive
Cursive's picture

Dear Nic Colas,

This makes about as much sense as Leo's solar-is-our-savior portfolio.  The act of getting a tattoo is not risk-taking so much as it is a defining mark.  It's usually associated with an initiation ritual.  In the South, tattoos are huge on college campuses; this is not risk taking, it is initiation.  Among the lower income crowd, it is an outward manifestation of what one represents - sort of like wearing your heart on your sleeve.  In the Gulf South, the New Orleans Saints are extremely popular and you can't escape the fleur-de-lis design that has huge crossover appeal to women.  My god, if I never see another 50 year old grandmother with a fleur-de-lis tattoo.  There is a reason that lower income people favor gold teeth over filings: your mouth makes a relatively safe deposit box.  Ostentacious?  Not really when it's all you got.  You want me to believe that the fate of equity markets will be determined by my 27-year old, fleur-de-lis on the foot tattoo wearing, unwed mother-of-two children accounts payable clerk?  I'll grant you that her mating standards are extremely low (and risky) and she makes really bad choices in general, but she doesn't have the coin to prop this market.

Wed, 04/18/2012 - 00:00 | 2353637 Acorn10012
Acorn10012's picture

No doubt...it's not risky behavior when everyone has one. If anything, it's herd behavior.

Wed, 04/18/2012 - 00:04 | 2353648 Cursive
Cursive's picture

@Acorn10012

It's my experience that tattoos are more prevelant now with females.  I am forever being told by this one and that one that she was with her girlfriends and they all decided to commemorate their friendship.  The bonding aspect of tattoos is apparently unparalleled.  From all that I see, it is a choice for fidelity and safety, not rebellion or risk-taking.  In either case, it's all very repulsive to me.

Wed, 04/18/2012 - 00:30 | 2353715 Tapeworm
Tapeworm's picture

Tattoing is herd behaviour just like the baby boomer herd behaviour of buying a Harley-Davidson to prove their distinctness from their herd. Yet they ride around in large groups that defeat the purpose of a mortorbike that allows indepentdent movement. One has to become subservient in a large group of cyclists to what clown is riding at the front. Nearly all exhibits of so called independence today are just a manifestation of herd behavior.

Wed, 04/18/2012 - 02:14 | 2353867 vato poco
vato poco's picture

The mindless, earnest, doin'-as-they're-told-by-the-teevee crowd shuffling off to the tat parlor. Taking identical paths to nonconformity - just as most folks that age do till they grow out of it - only this path lasts, like, forEVAR. Dumbshits on parade, and now we've got us an even bigger dumbshit telling us *they're* gonna be the ones to save us.

Not likely.

Wed, 04/18/2012 - 02:33 | 2353882 vast-dom
vast-dom's picture

idiocy has many forms of expression. as does lameness and douchebaggery. it's too easy to get one. and beyond unoriginal. 

 

i briefly dated this insane chick that had a few tattoos and it was so funny how proud of them she was and i just kept quiet. everyone makes mistakes, even me. but at least my mistakes don't require laser removal ;)

Wed, 04/18/2012 - 04:15 | 2354004 TheGardener
TheGardener's picture

My bitch is full of them and I hate it.
But she is 24 years younger then me so I shut up.

Wed, 04/18/2012 - 07:39 | 2354156 kralizec
kralizec's picture

Herd behavior for some, too much booze for others!  LOL!

Wed, 04/18/2012 - 08:00 | 2354197 Sam Clemons
Sam Clemons's picture

Right.  It seems that conservative people (those that live within their means) are the ones who save and CAN take risks.  The people blowing their disposable income on tattooes instead of building a war chest for our economic future are idiots.

Wed, 04/18/2012 - 00:30 | 2353712 vast-dom
vast-dom's picture

today tattoos are sheeple trying to be different = still sheeple, just tattooed sheeple -- the demographics are a strong case in point. retarded article.

Wed, 04/18/2012 - 06:31 | 2354085 Bendromeda Strain
Bendromeda Strain's picture

You want to really be different nowadays? Reject the "smart" phone.

Wed, 04/18/2012 - 07:32 | 2354148 BeetleBailey
BeetleBailey's picture

....not to mention, I got a lorum piercing and it pleases the HELL out of the ladies......to hell with society/morays/herd mentality.

..but there, I mentioned it.

Jot that down whomever is spying.....I paid in cash.

Wed, 04/18/2012 - 15:35 | 2355745 ZeroPower
ZeroPower's picture

Bah.... warning, do not google image search lorum piercing

Tue, 04/17/2012 - 23:54 | 2353616 MrPalladium
MrPalladium's picture

Stock prices depend upon money flows. The younger generation would have to be incredibly stupid to bid for stocks knowing that the retiring boomers will be selling for at least the next 10 years. Why would they not wait for a bottom in 2021? Further, evidence that they are prone to risk taking merely indicates a high probability that they will be early and get crushed in one or more swoons over the next decade. Finally, in an economy that is driving down U.S. wages to parity with China it is highly unlikely that the younger generations are going to have he cash to maintain stock prices, much less increase them.

Demographics make the flows look bad. Subjective preferences for thrills and risk taking are thus irrelevant., 

Wed, 04/18/2012 - 01:06 | 2353776 Dr. Engali
Dr. Engali's picture

You're too soon. The baby boomers have at least 20 years of selling 2032 is more like it.

Wed, 04/18/2012 - 07:07 | 2354114 Ignorance is bliss
Ignorance is bliss's picture

I think the baby boomers will be selling a lot faster then you believe. As a generation they are in terrible physical condition (medical bills). As a whole they are unprepared for retirement and inflation is growing at an accelerated rate. I always hear about how the debt levels will affect future generations. Baby boomers will be the least prepared and the hardest hit. As more MF Global / Bearnie Madoff shit hits the fan watch them stampede out of the market. Look at current market outflows. Baby boomers got hammered in the housing crash and are hoarding under the mattress. As a generation they are responsible for more fraud, war, and despicable behavior that I have ever witnessed.

Tue, 04/17/2012 - 23:55 | 2353623 barliman
barliman's picture

 

Risk taking does not equal peer pressure

Amazingly poor reasoning in this article, cherry picked data and no sociological insight whatsoever.  Tattos are not risk taking when one out of three people in a generatiopn has one. They are a sign of conformity and a desire for peer acceptance. They are also a statement of social involvement or the lack of feeling connected.

As a means of setting expectations for future performance - this is right up there with QE uber alles and the Biriyini ruler.

barliman

Wed, 04/18/2012 - 01:26 | 2353811 AustriAnnie
AustriAnnie's picture

"I got my tattoo:

....with friends" (peer pressure, herding behavior)

....because my friend got one and I wanted to be just like her" (copycatting/seeking acceptance)

...in the military because all the other guys had them and I didn't want to act like I wasn't tough enough" (herding/seeking acceptance)

...because so-and-so on the MTV show Jersey Shore has one" (lamest version of copycatting ever)

 

There might be a few individuals who flat out think they look awesome or had some image that represents something so meaningful they wanted it written in their flesh and will never regret it....but I dare say those are probably exceptions to the rule.

 

Tue, 04/17/2012 - 23:55 | 2353625 Seasmoke
Seasmoke's picture

i love tramp stamps !

Wed, 04/18/2012 - 01:29 | 2353820 AustriAnnie
AustriAnnie's picture

which proves the point many are trying to make in this thread: is that the chick you want to depend on to save us all?

 

Tue, 04/17/2012 - 23:55 | 2353627 Acorn10012
Acorn10012's picture

"Keep hope alive.". Still looking for a net drain out of the market.

Wed, 04/18/2012 - 00:00 | 2353638 NOPOMO
NOPOMO's picture

Take another swig of that hopium.  The under 30 group is lucky if they are employed.  Furthermore, their real disposable income will shrink due to the growing interest payments on the debt.  So, stop fooling yourself and anyone else that entertains this as some plausible way out.  The short of it is there is no way out for those Baby Boomers who have borrowed and leveraged all they could from the real economy.  Soon they will find their ill gotten gains shrinking in real terms against inflation or an outright contraction.

 

 

Wed, 04/18/2012 - 01:40 | 2353833 Kprime
Kprime's picture

"The under 30 group is lucky it they are employed"

Agreed.  We are headed down the path of the Europeans.  They are 15 years ahead of us on the path to destruction.  In 15-20 years the youth (16-25) unemployment rate will be above 50%.   Additionally this age group just past 1 trillion in students loans.  More outstanding debt than the credit card debt of the boomers.

Cant afford life?  Nothing to do? get another tatoo.

Wed, 04/18/2012 - 00:00 | 2353639 lemonobrien
lemonobrien's picture

i like gold.

Wed, 04/18/2012 - 01:33 | 2353826 TheMerryPrankster
TheMerryPrankster's picture

Yeah but you can't eat gold.

 

Of course you can't eat tattoos either, but you can slobber all over them. Same goes for ipods/ipads/iphones/ijunk.

How many food stamps to buy a gram of gold? When the unwashed can do that calculation in their collective heads in seconds,the stock market will merely be a collection of old computers and empty dreams collecting dust in darkened buildings, an artifact of a long gone era. As nostalgic as the tulip exchange.

I like silver, but then again i have lots of space.

Wed, 04/18/2012 - 00:00 | 2353645 williambanzai7
williambanzai7's picture

ZERO TAT

Wed, 04/18/2012 - 00:04 | 2353655 Cursive
Cursive's picture

@WB7

We still need the gorilla with a chainsaw penis.

Wed, 04/18/2012 - 03:15 | 2353960 barliman
barliman's picture

 

???  "... need ..."  ???

Just google that shit, ok?

barliman

Wed, 04/18/2012 - 00:05 | 2353657 Acorn10012
Acorn10012's picture

This site just keeps getting better.

Wed, 04/18/2012 - 00:13 | 2353677 Agent P
Agent P's picture

That is one big ass tattoo!

Wed, 04/18/2012 - 00:57 | 2353749 G-R-U-N-T
G-R-U-N-T's picture

Them not tattoo's, don't you ever call them tattoo's, them skin illuuuustraaaations!!!!!!!!!!!

-Rod Steiger (The Illustrated Man)

DON'T DARE STARE AT THAT ILLUSTRATED ASS!!!!

 

http://www.firstlookonline.com/movies/161342-trailers

Wed, 04/18/2012 - 10:48 | 2354780 machineh
machineh's picture

On the other butt cheek: 'AAPL' logo!

Wed, 04/18/2012 - 02:58 | 2353927 HD
HD's picture

This adventurous gal has another tattoo you'll never want to see...

A tribute to Jim Cramer - his face tattooed in between her buttocks with her anus as his mouth. Tattoo based on real life events.

Do NOT follow this link or you will be banned from the site!