4 Ways Millennial Investing Differs from Warren Buffett

By: Andrew McShane

Millennial Investing is challenging the tried and true ways of Buffett's Investing Principles. But is this such a bad thing?

You are about to learn...

  • Warren Buffett's Investing Strategy
  • The Millennial Investing Strategy
  • Why They Differ

For years, new investors have turned to the Oracle of Omaha, Warren Buffett, for guidance on how to start investing and the right guidelines to create wealth in the stock market. Warren Buffett’s prudent and judicious approach to investing have long been the staples of a successful portfolio. But do those staples still hold true for new, millennial investing? With rapid dissemination of information, new technological advancements, and a shift in socio-economic viewpoints, the new millennial investor is charting their own path. It’s a path that is starting to deviate from the tried and trued values of Warren Buffett. But Is it such a bad thing?

Buy and Hold vs. Frequent Trading

Buffett’s Position:

One of the first principles of successful investing Warren Buffett preaches is “Buy and Hold.” In fact, Buffett is often quoted as saying, “if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” The theory of “Buy and Hold” is that you should be able to invest in a company that is of such quality, you could set it and forget it for the next decade. Buffett’s mantra of “Don’t trade, invest” favors long term returns over the potential of quick wins and excitable moves. But do new, millennial investors feel the same way?

The Millennial Investing Position:

Recently, E-Trade conducted a survey of new, millennial investors and found that only did over half of them feel as though their risk tolerance has increased in the past year, but that the same amount (51%) favored frequent trading. 46% said they are trading derivatives more frequently which is higher than 30% of the total population. This is obviously quite a deviation from buying and holding a stock for 10 years. New Millennial investors are not waiting to learn to trade options, they are simply doing it and learning on the fly.

When you look at the landscape of investing today, it’s easier to understand why these young investors are much more active. New apps like Robinhood have made trading feeless, removing the immediate consequence of the traditional fee-based trading. And where traditional investors would have to wait for earnings calls or news to come out before making an investment, new information sources within social media have also made accessibility to stock and trading information almost immediate.

Whether this new immediate mind-set when it comes to trading and investing will pay off in the long-run remains to be seen, but this is one area where young investors are moving away from Buffett’s long-held tenet.

Invest in Companies You Understand vs. Buying the Latest Trend

Now, this one is a doozy of a difference.

Buffett’s Position:

Buffett often preaches to stay away from investing in companies that one does not fully understand. He feels that a solid investment strategy is to first understand how the company makes money from their product. “Buying the Buzz” is too much of a risk if you don’t understand the core capabilities of the company. If the company is too complicated to understand, you should not invest.

The Millennial Investing Position:

Have you head of cryptocurrency or NFT’s? We are entering an entirely new world of investing where seemingly new ways to invest pop up on the landscape every day. And for the traditional investor, these investable assets make little to no sense at all.

Buffett’s has said of cryptocurrency, “They basically have no value and don’t produce anything…in terms of value: zero.”  I’d hate to hear his position on a Cat Meme, Non-Fungible Token that sold for $500k.

New investors can now invest in just about anything; wine, art, ship deconstruction, litigation funding – the list goes on.

This is obviously a far departure from investing in McDonald’s or Walmart. Young investors are leading the charge here and investing in areas that are massively complex and seemingly have no tangible product at all.

Know the Difference Between Price and Value vs. Ride the Momentum

Buffett’s Position:

Long known for his value investing strategy, Buffett has said “Price is what you pay. Value is what you get.”  Buffett has often targeted stocks that are trading at a price below their intrinsic value. If you can find a quality company at a low price, this is the ideal investment. Just because a company may fall out of favor with consumer sentiment doesn’t mean that its value is any less. In fact, these are the opportunities Buffett looks for in an investment.

The Millennial Investing Position:

You only have to look at 2020 to understand why investors are favoring growth stocks vs. value stocks. 2020 went on such a wild ride when investors piled into clean energy and tech stocks and shot them through the roof. Companies without a cent of profit rose 200% – 300% in just 6 months. Large chasms of price and value were created as investors simply bought into the momentum of the latest trend.

And as it is with any major growth of a stock, these inflated momentum stocks were quickly corrected. Investors may have rotated back into value, but the mindset is there. New investors are trying to catch on to the trends as they rocket in growth. This added upside pressure propels the stock price higher but only adds to the separation of price and value. Soon, those stocks will try to realign themselves in the form of a correction.

Stay in Cash vs. Take Cash off the Sidelines

Buffett’s Position:

Buffett feels that investments are not always to be ready to be had. He feels that one must be patient and wait for a correction or an opportunity to buy an investment at a bargain. And when there isn’t an investment to be made, the best approach is to stay on the sidelines in cash. In general, Buffett feels that having a portion of your portfolio in cash is always a great option.

The Millennial Investing Position:

Millennials are moving off the sidelines from cash into the market at a much faster clip than the rest of the market. Over one in three investors (34%) under the age of 34 are moving out of cash and into new positions. This is 15% higher than the total population. This speaks to the new-found, aggressive nature of the millennial investor. They are no longer waiting around for the right, sound investment to appear. They are chasing these investment opportunities with cash they have long held on the sidelines.

In Summary:

There is a growing difference between the long-held, investing principles of Warren Buffett and the evolving landscape of the new millennial investor.

  • Buffet Buy and Holds Investments for 10 years. 51% of new, millennial investors are frequent traders.
  • Buffett only invests in companies he understands. New Millennial investors are willing to invest in complex, obscure assets that have the potential to make money.
  • Buffett tells you to know the difference between price and value. New, millennial investors are just as likely to buy into a stock purely based on momentum.
  • Buffett says to hold in cash if no investment opportunity presents itself. 34% of new investors are moving out of cash fast, 15% higher than the total population.

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