It seems America’s youth have found a hero, and he is 84 years old.
For those aged 34 or younger, their No. 2 favorite stock – behind only mighty Apple Inc – is none other than Warren Buffett’s Berkshire Hathaway Inc.
This is according to new data from the brokerage TD Ameritrade, which took a snapshot in May of the individual equity holdings of every one of its retail clients (not including mutual funds and exchange traded funds, which themselves hold baskets of different securities).
When it came to picking individual stocks, the results showed a generational difference. Millennials, who are pegged as tech-obsessed upstarts, favored the stocks of their own time. Aging baby boomers, who are stereotyped as stubbornly set in their ways, and Generation X, which is stuck in the middle, mostly favored what they know best, that is, dividend stocks.
Among the top picks for young adults aged 34 and younger: Apple, which accounts for a whopping 11.7 percent of their equity holdings; Facebook Inc, at 1.9 percent; electric carmaker Tesla Motors Inc (TSLA), at 1.1 percent; and Chinese e-commerce giant Alibaba Group Holding Ltd, at 1.1 percent.
For all those aged 35 years and older, Apple reigns supreme in their portfolios as well, with a share of 9.4 percent. Other popular stocks include General Electric Co, at 1.7 percent; AT&T Inc, at 1.4 percent; and Exxon-Mobil Corp, at 1.4 percent.
No mystery there: Follow the dividend.
“Older clients tend to search for higher yield,” said Nicole Sherrod, TD Ameritrade’s managing director of trading, since dividend-paying stocks provide a steady income stream as boomers start easing into retirement.
“So you see energy companies like Chevron, and healthcare names like Johnson & Johnson, and telecoms like Verizon, all of which they are very familiar with and have been investing in for years.”
For the youngest generation, however, it is all about what is hot now.
“It’s a demographic that is very much into tech, so it’s not shocking that it tends to skew much higher in their portfolios,” said Sherrod.
“Take something like Tesla: It’s something hot that millennials covet, and although they may not have the purchasing power to buy the car yet, they can certainly buy the stock.”
Who Has It Right?
But the underlying question: Do America’s respective generations have their equity mixes right? Or is some rebalancing in order?
To find out, Reuters took the trove of TD Ameritrade data to Patrick O’Shaughnessy, a portfolio manager with Stamford, Connecticut-based O’Shaughnessy Asset Management and author of the book “Millennial Money: How Young Investors Can Build a Fortune.”
His No. 1 concern for both generations: Back off on the Apple, guys. Not because of poor fundamentals, but because of serious overweighting.
“Those Apple percentages are crazy high,” O’Shaughnessy said. “In comparison Apple is around 4 percent of the S&P 500, so that is a huge individual position for both age groups.”
O’Shaughnessy also warns millennials against loading up on the latest sizzling tech stock, say Alibaba, and advises them to look hard at underlying valuations. In many cases price-earnings ratios have shot sky-high, and just do not represent smart buys.
If millennials remain determined to invest in the sector, they should instead look at stodgier tech names like Microsoft Corp, he said. With proven revenue streams, stock buyback programs, and growing dividends, tech’s old guard should prove safer harbor if market storms hit.
O’Shaughnessy’s final tip for investors: Look abroad. Since the U.S. market has “killed every other market for five years,” that likely means many investors are now overweight in American stocks. As a result, bulking up your portfolio with more international names would be wise.
Whether it comes to millennials, or Gen Xers, or boomers, each generation seems to be investing in what it knows. Generally speaking, that is a good thing – and happens to be a favorite principle of Warren Buffett himself.