Hey millennial, not so fast on St

Millennials, loosely defined as those born between 1982 and 2004, are reportedly returning to parents’ houses in many major cities of the world as real estate prices have jumped manifold in the last 20 years. However, a majority of them haven’t seen their income levels rise in same proportions after they attained adulthood. Therefore, reportedly many millennials, living in various cities including Indian ones, want to make fast wealth, by catching up with momentum in traded assets like stocks, cryptocurrencies, etc, to make up for the relatively lower rise in income levels.

The stock markets across the world are already known for “mass anxiety”, which leads to build up of mass perception, which in turn destroys wealth or prevents from creating wealth. When the Lehman crisis originated in the developed economies and India was still relatively growing better, the mass anxiety (or fear) led to over 52% fall in the Sensex. However, the Sensex gained two-and-a-half times from the low base in the next 22 months.

Greece, a small nation, which accounted for a mere 0.2% of global GDP, went through crisis in 2015, the world equity markets lost trillions of dollars of market values. But subsequently, global equity markets recovered fully. Similarly, the announcement of Brexit (Britain withdrawing from the European Union), led to the Sensex falling over 1,000 points in a single day, but within few days, it recovered fully.

On the domestic front, this anxiety of the investors has led to loss of opportunities in many individual stocks as well. Last year, resignation of CEO in an institution called Infosys and reclassification of assets as bad by Axis Bank to fulfill the regulatory norms led both stocks crashing. However, the same stocks now recovered over 35% in the short span of time by beating the benchmark indices by big margins. Market anxiety without proportionate fundamental basis could lead to missing great wealth creation opportunities.

Now this huge volatility caused by mass anxiety got accelerated further as a large number of millennials now want to ride on momentum in traded assets. For example, in 2017, bitcoin rose about 25-fold from $800 to nearly $20,000 on December 17. However, within 30 days, it crashed about 50% to trade below $10,000. Similarly, in the domestic equity markets, a large number of individual stocks fell even 60% of their values in the last one year despite the benchmark indices quoting at life-time high levels now.

There are a large number of millennials, in a hurry to build fast wealth, want to invest in individual stocks or other traded “assets” like cryptocurrencies just for a week or two, if not for a day or two. For many of them it means, jump on to ride when the momentum picks up and get rid of them quickly, if they lose their price momentum, irrespective of their underlying fundamentals. Many millennials laugh at the value-investors, who advocate investing in such assets for 1 to 3 years. This approach has serious consequences for the millennials as well as for their responsible parents. It is high time the parents force such millennials to go through the history of bubbles in asset prices and read great book like “A Short History of Financial Euphoria” by John Kenneth Galbraith.

The writer is founder and managing director, Equinomics Research & Advisory Pvt Ltd