How the Financial Crisis Affected Millennials (EP.46)

Episode Summary

Executive Summary: The episode reflects on the 10th anniversary of Lehman’s failure and the scars left by the financial crisis, contrasting investor behavior, generational investing patterns, and how past crises shape current biases. The hosts also critique surveys, discuss life insurance sales tactics, evaluate Cliff Asness’s candid defense of liquid alts, and react to several headlines, including college disruption, retirement spending, scams, and Elon Musk’s Joe Rogan appearance.

Main Topics: 10th Anniversary of the Financial Crisis (Priority: 5/5): The hosts revisit Lehman’s failure and the massive rebound since the GFC, noting how the crisis continues to shape attitudes toward markets, risk, and asset allocation. Generational Investing and Scar Tissue (Priority: 5/5): They debate conflicting survey data on millennial stock ownership and allocations, arguing that financial crises and inflation episodes leave lasting behavioral marks across generations. Life Insurance as an Investment Mistake (Priority: 5/5): A personal anecdote from the insurance industry is used to explain how permanent life insurance was aggressively marketed as an investment substitute after the crisis, often misleading consumers. Liquid Alternatives and Manager Honesty (Priority: 4/5): They praise Cliff Asness and AQR for candidly explaining why liquid alts are diversifiers, not hedges, and for avoiding the typical goalpost-moving seen in active management letters. Survey Skepticism and Questionable Headlines (Priority: 4/5): The hosts repeatedly argue that surveys can mislead, citing a Facebook deletion study and retirement spending surveys as examples of poor sampling and framing. Miscellaneous Market and Business What-Ifs (Priority: 3/5): They discuss disruptive college predictions, day-trading fraud, Purdue Pharma’s patent, athlete-accountant fraud, value-vs-growth technical charts, and a hypothetical alternative fate for iShares/BlackRock. Recommendations and Personal Media Picks (Priority: 3/5): They close with book and film recommendations, including Peak, Ozark, The Darkest Hour, a Derek Thompson podcast, and reactions to Elon Musk’s Rogan interview.

Key Arguments: Financial crises permanently alter investor psychology, and people often “fight the last war” by overreacting to the most recent market trauma. Survey data is often unreliable because it depends on wording, sample selection, and what accounts are measured; behavior matters more than stated intentions. Young investors may appear contradictory because taxable accounts, retirement accounts, and actual asset allocation behavior tell different stories. Life insurance can be a legitimate risk-management tool, but it should not be pitched as a substitute for diversified investing or as the core of a financial plan. Liquid alternatives are meant to diversify portfolios, not to hedge or time market crashes; expectations for them are often unrealistic. Candid, evidence-based communication from managers is rare and valuable, especially when a strategy is underperforming. Many headlines about disruption or behavioral trends are overstated when examined closely, especially if based on thin surveys or simplistic charting. Elon Musk’s podcast appearance suggested less “erratic genius” and more a highly gifted, socially awkward CEO whose mindset can be difficult to sustain publicly.

Data Points: S&P 500 total return since Lehman failure: up 185% - The hosts note the market’s performance over the 10 years since the GFC top/failure period, including a 45% drawdown. Initial drawdown after buying before Lehman bankruptcy: about 46% over the next six months - Illustrates the pain investors would have endured before the long recovery. Stock ownership among ages 18-29 (Gallup, 2009-2017): 31% - Used to show lower direct stock participation after the crisis. Stock ownership among ages 18-29 (Gallup, 2001-2008): 42% - Compared to the later period to show a decline in young stock ownership. Median millennial equity allocation (Vanguard study): about 90% in equities - Used to argue that retirement accounts and broader holdings may show higher equity exposure than taxable-account surveys suggest. 2015–2017 survey sample in Facebook study: 3,400 users aged 18 to 29 - The hosts criticize the study as too small to support sweeping claims. Facebook users claimed to have deleted app: nearly half - Headline example the hosts dispute as misleading. Retirement spending expectation in initial survey: 70% of current spending - Contrast between initial survey response and more detailed questioning. Retirement spending expectation after detailed questioning: 130% of current spending - Used as an example of how survey framing changes results dramatically. American spending on cars annually: $4.5 trillion - Mentioned in the Derek Thompson podcast discussion on the future of automobiles. Cars in Ann Arbor study: 120,000 cars - Example used to illustrate low utilization of privately owned vehicles. Cars needed to replace that fleet: 18,000 cars - Used to demonstrate efficiency gains from shared/autonomous vehicles. Digits of pi memorized in one example (1973): 511 digits - From the book Peak, showing the progression of memorization methods. Digits of pi memorized in another example (five years later): 10,000 digits - Shows improvement through deliberate practice. Digits of pi memorized in 2015 example: 70,000 digits - Used to highlight the extreme effects of training and mnemonic systems. Time to recite 70,000 digits of pi: 9 hours and 7 minutes - Illustrates the scale of the memorization feat. College count in U.S.: over 4,000 colleges - Used to question the claim that half of colleges will go bankrupt.

Pivotal Quotes: "“I am not in the market for the long term and will get out quickly. If I stay for a whole summer, that's already too long.”" — Karen Koons (quoted in Barron’s): Example of crisis-induced fear and short-term thinking about markets. "“Liquid alts are a diversifier, not a hedge.”" — Cliff Asness (as discussed by the hosts): Central framing of why alternative strategies are often misunderstood by investors. "“Being smart often means being better and more creative at coming up with stories for why now is different.”" — Cliff Asness: A key insight about how intelligence can reinforce narratives and bias.

Implications: Listeners should be skeptical of surveys, headlines, and product pitches that oversimplify risk or investor behavior. The episode reinforces long-term investing discipline, realistic expectations for alternatives, and awareness that crisis-era psychology can distort decisions for years.