Baby bulls

Young people with no professional investing experience are riding high on the stock market. But do they know that what goes up must come down?

By Heather Chaplin

Published April 15, 1998 8:07AM (EDT)

When Robert Gapasin graduated from Cal Poly San Luis Obisbo in 1991, his parents gave him a choice of graduation presents. He could have an all-expense-paid trip to Europe, $5,000 or 100 shares of IBM. Gapasin, who had never been the least bit interested in the stock market, still wonders why he chose IBM.

Bewildered, perhaps, but not regretful. Gapasin, a 29-year-old electrical engineer from San Jose, has since become an avid investor. He buys mostly technology and apparel stock, always in companies that have products he knows firsthand and never with the help of a broker. He's owned Microsoft, Nike and the Gap, as well as lesser known companies, such as KLA-Tenor, and he almost always makes a tidy profit.

Gapasin's success is due to skill but also to an employee stock purchase
plan, a 401K plan and one of the greatest bull markets in history. All told,
Gapasin has parlayed $5,000 worth of IBM stock into a portfolio worth

"This is a pretty unusual time," Gapasin concedes. "Anyone who's not in
on it now is crazy."

It's hard not to be seduced by a market that gives someone in their
30s with no professional investing experience 100 percent returns
year after year, and Gapasin is by no means the only young person to
succumb. As the bull market rolls on, it pulls with it a new breed of
investor: men and women under 30 who don't necessarily fit the
mold of the sleek Wall Street investor, and who come armed with a new set
of expectations and a new investing style. Their expectations are
outrageous, formed by years of unprecedented and continuous growth.
Their style is aggressive, defined by optimism, impatience and a
tendency to trust their gut and ignore their broker.

According to the Investment Company Institute, 45 percent of people
aged 18 to 30 invest in the stock market. And why not? While market
returns have historically averaged about 8 percent annually, returns the
last 15 years have averaged 19 percent. Even after October's 554-point plunge and despite the Asian crisis still hovering over American shores, the Dow Jones industrial average has continued to reach new heights. Just last week, it broke the 8,900 barrier for the first time, and Monday it closed at 9,110. This time
last year, the Dow was under 6,500.

For the 45 million people born between 1965 and 1978 -- commonly dubbed Generation X -- the boom market is as much a fact of life as the
Cold War was to people coming of age in the 1950s. For high- and
middle-income 20-somethings, investing in the stock market is just good
sense. More likely to put off child rearing and less concerned about
home owning than their middle-class progenitors, Xers are in a position
to exploit the opportunities their greater discretionary income affords.
And they're doing so with a vengeance. As of 1996, more people
between the ages of 18 and 30 were invested in mutual funds than people
between the ages of 31 and 50, according to the Investment Company

Twenty-nine-year-old Ken Kurson has nurtured a lifelong obsession with the
stock market. He dropped out of the University of Chicago two years ago to
start a 'zine dedicated to the subject called Green. The magazine now has
17,000 subscribers, but Kurson remembers a time when he wasn't so
forthcoming about his obsession.

"There's a certain amount of self-consciousness for any ... hipster in admitting they care about making money," Kurson said. But times
change, as his very success testifies, and Kurson now finds his
generation has caught up with him and perhaps even exceeded him in
their enthusiasm. While Kurson believes the influx of young people into the market is good -- fattening their own pocketbooks and providing a boost for the economy -- he does wonder about a generation that's never glimpsed a stagnant or tumbling market.

"Irrational exuberance makes people forget that what comes up, also comes down," he said.

It's a concept young investors pay lip service to, but do they really
believe it?

Sarah Ruby, a 27-year-old graphic artist in San Francisco, made her
first venture into the stock market four years ago when she bought 50
shares of Electronic Arts, at $20 per share. A year later Ruby sold half
the stock, and in February she sold the other half at $39.56 per share,
frustrated that her return wasn't higher.

Now, Ruby owns stock in Procter & Gamble, which has grown by more
than 50 percent in the year she's had it.

"I guess I don't always realize how amazed I'm supposed to be," Ruby
said. "I've never experienced a drop where I get worried. Maybe I've
taken it for granted, but it seems like this is just what Proctor &
Gamble does -- it just keeps going up and up."

Brian O'Neal, 26, is an electrical engineer in Atlanta who came close to
doubling his personal wealth last year. O'Neal developed his serious taste
for the market on his own, starting with $2,000 he had squirreled away
in college. One of the first stocks he acquired was Coca-Cola
Enterprises, which he bought in 1991. He sold quite a bit of the stock
over the years, but still made $15,000 when he sold the remaining
shares in 1997.

In one breath, O'Neal says the 20 percent annual returns of the last
decade can't persist. In the next, he says eagerly that he continues to shoot for 35 percent.

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Green's Kurson traces his generation's romance with the market in part to its lack of confidence in the Social Security system. While Kurson himself thinks the concerns are exaggerated, his theory is supported by an American Stock Exchange survey showing 88 percent of 25-to-34-year-olds questioned don't think Social Security checks will be a source of income in their old age.

Kurson also points to the popularization in the mid-1980s of 401K plans and heavily tax-advantaged IRAs and to the cessation of adequate company pension plans. Add to the recipe a bull market that won't let you lose and you have the making for a real cultural shift.

Ethan Garber became interested in the stock market at 17 -- while working at a Pizza Hut where the TV was permanently tuned to the Financial News Network. After several months, Garber found himself not only absorbing the information but also becoming entranced by it. Soon thereafter, a relative gave him a subscription to the Wall Street Journal, and it wasn't long before Garber had made his first stock purchase -- shares in the Financial News Network -- and was managing a small trust fund left to him and a dozen family members.

Fifteen percent annual returns and a stint at Wesleyan University
followed, where Garber spent more time on pay phones talking to
brokers than in classrooms. According to Garber, his obsession didn't go
over too well with college peers. He described Wesleyan as "not a school
that celebrated capitalistic pursuits." Recently, however, old college
friends have begun popping up, seeking his financial advice and showing
real interest in the market.

"There's been a dramatic shift both in the level of topical knowledge
people have and in their compulsion to be involved," said Garber, who's
now a research analyst at an investment bank.

Part of what Garber is experiencing is undoubtedly the aging of his
peers, young 20-year-olds moving into their late 20s and early
30s who are beginning to worry about financial security. But where
young people of the previous generation were known for their disdain of
worldly matters, this generation seems not only willing to pursue
material wealth but thrilled by the chase. It's a fact that's been noted by
executives at the online brokerage E-Trade, who refer to Gen Xers as
"young fogies" because they're so consumed with financial matters.

"It's almost like a sport," said O'Neal, the engineer in Atlanta. "I love
the balance sheets, the statistics -- I have at least 200 annual reports in
my house, I download financial information all the time. It's a game for
me, but it's a game with the potential to set me free financially."

Gapasin, the engineer from San Jose, said the buzz of stock market talk and
the excitement of stock market riches hovers over social interaction. Of
course, that's Silicon Valley, where IPOs are as common as daylight. But
even people in other industries, far away from semiconductors and Wall
Street, report a similar buzz.

"I think the kind of people who would have had disdain for American
business 20 years ago now are involved in it," said Daniel Greenberg, a
27 year-old literary agent in New York who specializes in business
books and who himself began investing in late 1996.

Like Kurson, Greenberg's background is not one that encouraged an
interest in the stock market. His parents didn't invest primarily for
financial reasons but also because it wasn't part of the family culture,
which leaned more toward socialism then stocks. But Greenberg found a
latent interest in the subject when he began working with
authors of business books.

Last year, Greenberg put $5,000 into an IRA and a smattering of
stocks, and he's seen a return of about 20 percent, modest by today's
standards but nothing to scoff at. Like many 20-something
investors, Greenberg is self-taught, and he displays a sophisticated
knowledge of the stock market and a zealous dedication to the Wall
Street Journal and the New York Times business section.
"I know I'm riding the momentum," Greenberg said, acknowledging both
his success as an investor and his passion for the market. "I'm not naive
to the fact that this crazy prosperity is what's driving the fascination
with money and American industry."

But is it possible the excitement of this wild time has created an
atmosphere too partylike and that this new breed of investors doesn't
fully understand the attendant risks? What happens when the music

"I know people who think the Constitution guarantees them a 20 percent
return," said Green's Kurson. "It's dangerous because people are going
to be in for a grave shock."

While many young investors, like Greenberg, insist they're in it for the
long haul, some observers aren't so sure. Kurson thinks Generation Xers
may change their tune when a prolonged downturn occurs. "We're on autopilot now," he said, "but if there's a long, say, two-year
drop in the market, people will say, 'This is for the birds.'"

While most young investors don't anticipate becoming fed up with the market, they're already growing sick of working. Money for other generations has meant security, but for this generation it seems to represent a particular
brand of freedom. Gen Xers are planning for their retirements like
everybody else; it's just that they're aiming to be 35 at the time rather than

Gapasin, the San Jose engineer, is hopeful he'll be able to retire in his
mid-30s. He's not sure what he wants to do, but he's thinking about
becoming a teacher in a small town. Or traveling. Or driving a Porsche.

"It's not the money itself," Gapasin said, "that's just the means to an
end. I don't want to wait until I'm old to do things like travel. I want
to go while I can still rough it. I want to go while I'm still young."

Kurson takes a blunter tack. "I like to talk about fuck-you money," he
said, quoting famed Chicago journalist Mike Royko. "Enough money so
that if you needed to, you could tell your boss, 'Fuck you,' and you
wouldn't be eating Alpo afterwards."

Unless, of course, you owned the stock.

Heather Chaplin

Heather Chaplin is currently working on a book about video-game culture for Algonquin.

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