This Week in the Mayonnaise Clinic: Investing for Hot Millenninals

Plus: Where to eat in New York

Dear readers,

Welcome to the Mayonnaise Clinic! This week, I have answers to your questions about investing and New York restaurants.

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A reader in New York writes in:

I am a hot millennial who came of age during a recession caused by poor financial industry behaviors. I have often been frustrated by illogical tech investment: in crypto, the search for unicorns, etc. I feel vindicated in part by the collapse of crypto as it always merely seemed like speculation to me, though I am sympathetic for others my age who invested in crypto, who were told they are responsible for investing their own savings while regulators allowed a fraudulent and illogical market for retail investors to develop.

I am concerned that tech has become such a staple of our economy that it is nearly inescapable for retail investors. Over a quarter of the S&P 500 is tech, and it dominates in other indices that are often used by retail investors through ETFs. As much as we can say crypto and FTX were stupid investments, adjacent investments dominate our economy.

I guess my question is, how can we expect mom-and-pop retail investors — or plant dads and mothers of fur babies, i.e. millennial moms and pops — to invest their own money smartly for retirement when industry experts can’t?

I am not that concerned about this, Hot Millennial.

It’s true that tech stocks make up about a quarter of the S&P 500 by market capitalization. But these aren’t generally the sort of hot, speculative, unprofitable startups that get pumped up by venture capitalists and meme-driven investors. The largest companies in the tech sector of the S&P 500 are generally boringly profitable — companies like IT consultancy Accenture, networking hardware manufacturer Cisco, semiconductor maker Broadcom, and payment networks Visa and Mastercard.

As of the end of the third quarter of 2022, S&P reported that the S&P 500 had a trailing price-earnings ratio of 19, while its tech components had a trailing price-earnings ratio of 23. The higher price-earnings ratio for tech firms reflects optimism about the sector — that its earnings are expected to grow somewhat faster than those of corporations as a whole — but this doesn't imply that the average firm in the sector is searching for a moonshot. The tech sector is a big part of the S&P 500 mostly because tech company profits are a large fraction of total corporate profits.

I actually take the opposite lesson from the recent investing fashions: It’s been nice that so much of the recent bubble fervor has been caught up in areas that index fund investors are excluded from, like crypto, venture-funded private firms, and most meme stocks. It’s been very easy to sit these fashions out.

Dall-E image generation for “Hot millennials manage their stock portfolios, 3d render”

More broadly, the point of index investing is that we don’t substitute our judgment for the market’s. The market can be wrong, but we’re unlikely to be right more often than the market, simply by reading The Wall Street Journal and forming opinions about which parts of the economy are overheated. Overall, if you invest in the broad market, your wealth should grow in line with the economy’s growth, and so the important thing that ensures prosperity for orthodox investors is broad economic growth.

So that’s what to look out for, for your fur baby.

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A reader not from New York asks:

My wife and I are coming to New York in early April to see a couple of shows. I've never been to New York, and my wife hasn't been there in over a decade. We're staying on W. 48th in the Civilian Hotel, and I was hoping you might be able to provide dining recommendations. I'm overwhelmed by all the choices and would love some direction from you.

First of all, welcome! People call it the greatest city in the world for a reason.

I have some restaurant recommendations for you but let me give you some broad advice about your visit first.