A Reason To Invest In Start Ups (and the Stock Market)

Posted by Jeff Carter
on March 21st, 2012

The stock market is such an angry place. Watch business television and everyone is shouting. Go on a trading floor and everyone is shouting. Strong language is used on earnings calls and in reports to draw attention to things companies want you to notice.

Personally, I hate trying to be a stock picker. It makes no sense to me. Unless you have intimate inside knowledge of a business, it’s hard to know more than the market. That’s another reason why Gene Fama’s Efficient Market Hypothesis makes so much sense. Additionally, the opportunity cost of your time to try and know the company and its business inside out compared to what you could be doing seems really high to me.

Macro trends and entire sectors are what I look for. Quietly, there is a macro trend developing that might drive your capital allocation. Demographics.

Check out this chart, it’s mildly illuminating.

Right now, the generation with the most creative tools known to man are younger, age 25-39. They are no longer wet behind the ears, they have some experience, both work and lifetime. The age demographic of 20-30 is larger still. Because the baby boom generation is so large, and we have paid so much attention to it throughout their life spans it’s all you read about. The younger people are going to drive economic growth, and they will be more productive than the baby boom generation was because of the internet.

In general, more people in their twenties and thirties take a chance and undertake an entrepreneurial adventure. Generally, in your forties you have to provide for a family, and have other pressures. The risk/reward ratio for building a start up isn’t in your favor. I think the odds are changing for older people age 55 and up, because our lifespans are getting longer.

Because of demographics, we should start to see a massive start up renaissance in the US. Younger people know the drill. They aren’t going to be a forty year employee to the same firm. They will have a series of jobs. Many of them will choose to become their own boss rather than work for someone else. Once they get a few years under their belt working after college, they begin to understand the pain points in businesses that they can solve.

It’s time to begin to allocate some of your money to seed stage venture funds. It’s worth the risk, because you will be riding a wave of creativity that is about to transform virtually every industry in the US, and create some new ones too.

Additionally, the stock market is a good place to have money. As baby boomers retire, they will diversify out of stocks and into bonds. Their selling is a good chance for you to buy because the younger generation is going to build companies that make the bigger companies even more profitable.

A common theme I have heard over and over is that now is not the time to buy the market for the long haul because of the selling pressure boomers will have on it as they diversify. I think the opposite is true for the above reasons.

No doubt, we have some huge financial headwinds because of all the government debt on national, state, county, and city books. I am hopeful that in many places that can be solved. In some, like California and Illinois it won’t be. But I think most Americans are coming to the realization that the status quo cannot survive.

If you don’t have access to a reputable seed stage fund, or you want to learn about them, contact me. I have a bit of experience in this area.

Big long term trends are good things to put money into. Especially ones you can count on. News makers shout about this sector and that sector. Those are generally short lived and by the time you put your money in its over. Very few people are good at seeing the future. The demographics aren’t going to change. They are locked into place. Bet on it.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.