Why 2020's bear market has made young investors ‘excessively bullish’

·3 min read

There’s a trope about millennials being shaped by the 2008 global financial crisis in their formative years, pushing them away from financial risk-taking and taking on debt. They are more favorable to debit cards instead of credit cards and are wary of the stock market.

But this is only one tranche of the generation. A big chunk has only seen a market whose month is ever May.

The longest bull market in history started in March 2009 and ended with the coronavirus pandemic after 11 years of gains that are noteworthy on any long-view stock chart. People who came of age at the beginning of the boom have only seen the stock market tick up steadily, waylaid only for brief moments on its way from 680 to 3,380, almost 400%.

That they can go down too, sometimes, and sharply, is an important truth to at least know in a non-theoretical sense, even if you know they will probably go back up. Sure, many investors forget this (there are a lot of short memories in a bull market). But until March, a big chunk of people — new investors — had yet to experience this for themselves even if they had been in the game for over a decade.

If you squint or zoom out, you might not even notice the Coronavirus Crash. (Yahoo Finance)
If you squint or zoom out, you might not even notice the Coronavirus Crash. (Yahoo Finance)

“Because it has been 11 years since we've had an extended bear market, anyone under the age of 30 really hasn't lived through that,” Charles Schwab's Randy Frederick, VP of trading and derivatives, told Yahoo Finance last week.

March saw the end of those 11 years in a jaw-dropping fashion when the economy pulled the emergency brake in an attempt to contain the coronavirus. The market fell more than 33% in March (to 2017 levels) and millennials braced for their first bear market.

According to the major brokerages, that personal finance advice that had been internalized worked and millennials didn’t flinch. In fact, many bought the dip.

Just a few months later the market had recovered and was booming. Whatever lessons a bear market might have taught would be postponed for the next one. For younger investors, our latest bear market — at a month, far shorter than the average 16-month bear market — didn’t really count.

“If you've been an investor in this market and you're under the age of 30, you really have not gone through a bear market,” Fredrick said. “The bear market we had this last spring was an anomaly because it was a month long.”

A generation of superbulls

If millennials were bullish before, what about now? On the one hand, perhaps they’ve learned that it can all turn around in a matter of days, lopping off a third of their portfolio. But Frederick puts forth another hypothesis: the superbull.

If millennials experienced a real bear market, Frederick said, “I think they will change their tune. But because they have not experienced that, they become excessively bullish.”

What it might take for that tune to change must be significant, however. For a long-term investor, which many millennials are, a crash is an opportunity to buy the market at a nice discount — and hold for a decade or more.

But what if this lulls millennials into a false sense of security that the duration and nature of dips are predictable, following a pattern that may not repeat itself? There’s no guarantee that the next bear market will be this short.

“That's a plan that works and works and works until it doesn't any longer,” he said. “And I don't know when that will be, but they will also get hurt when these small pullbacks occur. But I suspect once they do, they'll probably just buy the dip one more time.”


Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.

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