The Magazine

HERD INSTINCT

May 18, 1998, Vol. 3, No. 35 • By DAVID FRUM
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Okay, maybe in some sense they deserve what they get, but I still can't help feeling sorry for the baby boomers. They're like a gigantic herd of wildebeests starving to death because their own hooves have trampled all the grass.


When they decided en masse sometime around 1982 that they had to buy a house that minute, they triggered one of the greatest real-estate inflations in history -- only to discover, when the time came to sell and trade up eight years later, that they had created one of the greatest buyer's markets in history for the baby busters who followed them. Now they're doing it again, frantically plowing all their money into stocks, bidding up share prices in a buying frenzy that can only be compared to -- well, to the housing frenzy of the 1980s. Somebody ought to ask all those old Woodstockians, Has it never occurred to you that your 50 million fellow boomers will be liquidating their portfolios to finance their retirement at exactly the same time you will?


Thirty years ago, the boomers' parents were demanding, If you are such individualists, why do you all listen to the same music, wear the same pants, and affect the same haircut? Today, those same individualists are all buying the same stocks at the same moment. And brute demographics tell us that just as the price of coonskin hats, chardonnay, sport-utility vehicles, and now Viagra shot up when the boomers decided they wanted those things, so the stock market will rise as long as the boomers have worked themselves into hysteria about saving for their old age. Alas, brute demographics also tell us that sometime around 2010, America will enter into the most prolonged bear market in history, as geezer boomers unload the shares they bought in the 1980s and 1990s.


Call it nemesis. The boomers unleashed the sexual revolution, only to find themselves at the fertility clinic 25 years later. They brought the drug culture of the Beats to suburban shopping malls, only to find their own kids toking at 12. They once pored over the writings of Frantz Fanon and Herbert Marcuse for insight into the instability and injustice of capitalism. Now they are betting their life savings that the one part of capitalism exempt from instability and injustice is the New York Stock Exchange. Good luck!


Don't misunderstand: I'm part of this trend. I'm a boomer myself, albeit one born on the boom's unfashionable post-1958 back slope. Nor am I some fearless investment contrarian. I too am busily buying overpriced stocks for my retirement plan, including some Merck at 30 times earnings as recently as last month. I bought those shares with the same misgiving with which I spent an entire week's allowance on an Elton John LP in 1974: a dark internal suspicion that peer pressure had just manipulated me into doing something incredibly foolish.


Who wants to miss out on this fantastic market rally, no matter how irrational one suspects it is? But the very same herd panic that has stampeded the boomers into stocks will, one day, stampede them all out again. How to avoid being trampled by the boomers? Well, as Lyndon Johnson discovered, there are just too damn many of them to fight. Much wiser to do what Dr. Spock suggested and humor them: Anticipate where they are going and get there first.


If I were cleverer about these things, I'd buy real estate in the spots to which the boomers will want to retire -- Idaho, maybe, or British Columbia. (One thing we know: It won't be Florida. At age 70, the boomers will still be rebelling against their parents.) I'd write a mass-market paperback about how rude and disrespectful teenagers are these days, and I'd start planning another one, to come out in about 15 years, saying that, just as the time had come in the 1960s to talk frankly about sex, so the time has come in the 2010s to talk frankly about incontinence. I'd buy myself a partnership in a funeral home.


As it happens, I am not at all clever about these things, and so I will probably just go on buying Merck at ever-rising multiples. And when the day comes that I'm selling shares for a fraction of the price I paid for them, I'll do my best to think philosophically about the disaster. After wrecking things far more precious and seemingly much more permanent, how on earth could the boomers be expected to spare my little portfolio?




DAVID FRUM