Investor Behavior: Baby Boomers and Retirement: Investment Theory of Capital Flow Analysis

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Investor Behavior: Baby Boomers and Retirement Investor Behavior: Baby Boomers and Retirement

Investor Behavior: The Baby-Boomers

An American Phenomenon

Although imitators of the flower children could be found in Europe and Japan, the experience was mainly American.

For most of the world, struggling under dictators, poverty, or the wreckage of war, from Soviet Russia, India, Communist China, and Indonesia, to Latin America and Africa, America's Baby Boomers were spoiled rich kids, acting out an adolescent fantasy without parental restraint.

The decline of traditional capitalist values had been underway for a long time.

When American Baby Boomers reached their late teens and college years, they hardly needed to rebel against the sense of duty, morals, and discipline of their ancestors.

The decline in traditional capitalist values and Protestant entrepreneurial ethics had been underway for a long time before they were born.

It was not their fault; they were merely children of their time.

By force of numbers, the Baby Boomers overwhelmed the tattered remnants of the old order and swamped the aging New Dealers that now ran universities.

Unsupervised, many adopted the adolescent, egocentric, self-indulgence lifestyle seen in the antics of Woodstock, draft card burning, campus sit-ins, recreational drugs, crude language, heedless violence, declining family values, and instant comfort fed by excessive debt.

The MBA Generation

The elite of this generation, indoctrinated in the rapidly expanding business schools, included many that, guided by the wisdom of newly-minted Nobel laureate economists, were trained to believe that a reduced corporate capacity to pay dividends need not hold back stock prices, that unrealized capital gains were better than dividends, that debt and equity were equivalent, and that the long-term financial health of worker-shareholders was not their problem.

Robert D. Putnam, in his classic study of American sociology, 'Bowling Alone', writes:

Boomers were slow to marry, quick to divorce, and had less respect of authority, religion, and patriotism.

'Boomers were slow to marry and quick to divorce. Both marriage and parenthood became choices, not obligations.
Although 96% of boomers were raised in a religious tradition, 58% abandoned that tradition, and only about one in three of the apostates have returned. ...
Throughout their lives they have expressed more libertarian attitudes than their elders and less respect for authority, religion, and patriotism. ...
[B]oomers were less trusting, less participatory, more cynical about authorities, more self-centered, and more materialistic ...'

By the 1980s, Baby Boomers were old enough to take over Wall Street. Now dressed in business suits, many of these pleasure-seekers were keen to become Masters of the Universe and use their MBA skills to write new rules that matched their world view.

The stage was set for investors to swallow the fuzzy logic that justified the stock-option / buyback culture.

Boomers Reach the White House

By the 1990s, the first Baby Boomer had reached the White House.

William Jefferson Clinton used his high position to shake ethical standards, flouting the morality and decorum of preceding generations and revealing himself as a foolish, self-indulgent leader, content to dabble in perjury, while taking apart the nation’s defenses and trading in presidential pardons.

However, with a bull market yielding paper profits and a sense of prosperity fed by full employment and seemingly low inflation, Clinton's partisans – mostly the beneficiaries of Big Government – were not inclined to chastise behavior and ideas similar to their own.

Boomers came of age when an Ivy League professor was promoting psychedelic drugs.

Throughout the 1990s, constant reminders of expanding unrealized capital gains and daily growth of paper portfolio wealth fed the illusion that riches were within the reach of all.

The Baby Boomer elite had come of age in the early 1960s when an Ivy League professor, Dr. Timothy Leary, preached, 'Turn On, Tune In, Drop Out' at the Harvard Center for Personality Research, while promoting psychedelic drugs and relative social values, just a stone’s throw from the Harvard Business School.

It is not surprising that many were not fazed by stock prices disassociated from the real world.

Professor Leary, later convicted of drug charges and sentenced to prison, escaped abroad and was repatriated by the CIA to be eventually declared by the radical left as 'the Galileo of our Age' and 'the most valuable philosopher of the twentieth century', while the Baby Boomers, clutching MBAs as their passport to high salaries and stock options, went on to rule Wall Street.

As the millennium approached, ordinary people watched their portfolios inflate without questioning the permanence of the numbers, happily upgrading their habits to include designer fashions and imported mineral water as suited a higher station in life.

Boomers Move Off Stage ... Watch Out!

Over the next thirty years, the Baby Boomers will move into history.

The final contribution of this 'Pig in a Python' to American society will be the burden placed on the retirement system and capital markets, as Baby Boomers liquidate their mutual fund portfolios to pay escalating costs of health care and assisted living.

The generation to whom they sell their stocks may be smaller than their own, raising concerns as to what effect the imbalance of supply and demand will have on equity prices.


Before proceeding, check your progress:


Robert D. Putnam, the sociologist, wrote that the Baby Boomers, compared to their elders, were:
Choice 1Slow to marry and quick to divorce.
Choice 2More patriotic.
Choice 3More religious.
Choice 4Less participatory and more cynical.
The first Baby Boomer to reach the White House was:
Choice 1Ronald Reagan.
Choice 2Jimmy Carter.
Choice 3William Clinton.
Choice 4George W. Bush
The slogan 'Turn On, Tune In, Drop Out' was popularized by a famous professor, called 'The Galileo of Our Age', who taught at the:
Choice 2 Harvard Business School
Choice 3 Harvard Divinity School.
Choice 1 Harvard Center for Personality Research.
Choice 4 Harvard Law School.

Capital Flow Analysis: Investment Theory   Baby Boomers : continued >

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