I’m often told that demographics are too slow and too boring to interest investors. Well, I’ll be sure to bombard such claims with a barrage of the email feedback I received from you. Our three-day series on how demographics affect the stock market proved provocative.

It was humbling to get your thoughtful feedback, questions and counterclaims.

Thank you.

Today, we take a look at some of your emails and I’ll respond. Nothing gets the Fortune & Freedom mailbox ringing like publishing other readers thoughts…

But first, a little reminder of my claims…

The stock market’s prices are driven by supply and demand, not value. And the life cycle hypothesis argues that people buy stocks when they’re young and sell in retirement. This means the relative size of age cohorts determines the stock market’s performance. That’s how demographics control stock markets.

You can think of this in terms of a population pyramid. The higher the slope, the more sellers there are relative to buyers. And population pyramids are looking rather unlike pyramids these days. They’re getting top heavy – which is when pyramid schemes tend to fail. When there aren’t enough buyers. That’s why I called the stock market a population pyramid scheme.

Or you can map out the same idea using the M/O ratio – the ratio of middle-aged to old-aged people. The number of buyers relative to sellers of stocks. It turns out this measure really does predict stock market valuations. And it’s headed down for decades.

But I doubt I’ve ever convinced anyone of any of this. It did intrigue many of you enough to reply to me at [email protected] though. (Don’t forget to include permission to republish your emails, if I may.)

Here’s some of the comments I received from you in response to all this…

Hi Nick,

I always read your articles with great interest! In particular, I like the clear insight you offer.

Just one question about demographics. I understand your point about supply and demand determining stock prices, and get immediately what you say about demographics and the aging UK/Europe population resulting in a possible over-supply of stocks for sale, driving prices down.

I am just wondering, whether this wouldn’t be counterbalanced by:

  • Overseas investors in emerging markets and other countries, sensing a good bargain in undervalued UK stock/companies and therefore compensating for local oversupply by purchasing UK stock
  • The continued need to hedge against inflation and devaluation of Sterling, which would result in most pension and investment funds and private investors continuing to invest heavily in UK stock – a strategy your magazine has previously advocated (albeit with a focus on certain sectors)
  • Companies would be forced to offer higher dividends to shareholders in order to attract investment.

On the other hand, I think in the event of oversupply and perennially low or no growth, investors are likely to take their money out of the UK and put this in other growth markets, which would then contribute to the downturn of the stock market in the UK. That would in turn have a long-term impact on the growth of the UK economy, resulting in a weaker economy and therefore less investment opportunities. But, having read your previous articles, this does not seem to be what you are suggesting is going to happen in the UK?



Those points are all spot on. And there are other factors which influence the supply and demand equation which I can add. Such as stock buy-backs – when companies “retire” some of their shares by buying them, which reduces the supply and the amount of shares on the market. It’s been a big factor lately and can make it appear that stocks are rising.

My argument is that demographics is likely to trump all this. I don’t think demographics elsewhere are particularly great, so I don’t see foreign investors saving the UK market. In fact, because of immigration, the UK’s demographics are quite good, comparatively speaking, as some of you pointed out in your emails. But this is a developed world problem and demand for stocks comes from the developed world.

I’m not sure whether the finance sector is a leech or a high-productivity industry. We seem to have financialised everything. The price of buying a car is now commonly quoted with financing and monthly repayments, not the actual price.

I predict dividends will become as central to stock market investing as they once were, with dividend yields higher than interest rates in order to compensate people for the risk of holding shares over bonds. But this may require a large drop in prices first.

I don’t know how I feel about emerging markets. They may never catch the financialisation and stock market buzz of the West given how badly it can play out in places like Japan.

Although it’s impossible to untangle what’s really going on in Japan, I wonder whether what we consider to be economic malaise isn’t such a bad thing.

Dear Nick,

Just read today’s piece. Well done and well done those Fed researchers. I like simple logic stuff and you can count me as a believer. However I will continue to stay in the market until it starts to flatten then perhaps I will sell take less profit and buy gold.

I have two small questions. In Japan when all normal people fled the stock market what did they do with their savings to grow their pensions?

The second question, there is a huge industry reliant on the stock market growing to persuade those same folks to invest (including yourselves to some degree) for their retirement. When stock start declining fund managers will not be able to show a profit, are you forecasting their demise?

A Nigel view wouldn’t go amiss we are great fans of his.

One great read very enjoyable so much so I will need to explain it to my wife.

Cheers G.J.

One of the solutions to the stock market’s demographic doom is of course to have more children. That’s the part I mentioned to my wife, anyway…

My wife is Japanese, and I happen to be in Japan now. My understanding is that people here favour bonds and company pensions, despite the low interest rates. People in Japan tend to stay with a single company for their career, and they see supporting parents as a duty, so corporate pensions appear to work well. And low returns are acceptable because deflation is a tailwind to the cost of living falling.

I’m worried about the UK and Australia, my two homes, being overexposed to the financial markets and the financial industry going into decline. But Japan seems to have handled it well. It’s just that a lot of wealth will be lost. But productivity may surge as clever people go back to doing useful things instead of speculating in zero-sum games.

Hi Nick, 

I’ve read your three emails with interest and your analysis of how the stock market should operate makes sense to me.

You may turn out to be right about a long-term decline – after all, the Footsie has gone nowhere for years. However I think it’s quite possible that central banks and/or governments will step in and start buying stocks in greater and greater amounts – ‘to support the market’. With unlimited amounts of funny money to throw at it, I can’t see prices being allowed to fall.

The housing market should have corrected a long time ago if money was priced honestly and the government hadn’t interfered on several occasions. I can’t see why the stock market will be treated any differently.

All of which is quite a sad state of affairs for people who try to think and invest rationally…

Best regards,


Those were my thoughts exactly back in 2017, when I gave a speech along the same lines. And that has been vindicated, so far, with stocks weathering all sorts of crises on a tide of central bank money. Even a pandemic doesn’t keep stocks down for long…

Central banks around the world have been buying stocks for years now. Some own rather large portfolios and large shares of the market. They can’t allow another Lehman Brothers moment.

However, inflation may be rearing its ugly head as a consequence of all this. And this undermines stock market returns in real terms, meaning inflation adjusted. Sure, stocks might go up in price. But they might not keep pace with inflation in the scenario you and I perceive. Stagflation would also spell trouble.

I hope this also answers D.B.’s question: “So how do you explain the fact that stock markets have recently reached record levels? All that despite a decline in the M/O ratio and a pandemic?” It’s a bubble financed by central bankers and fears of the inflation to come.

Dear Nick

A great article, I agree with the overall premise that demography has an enduring impact on long term market performance. Only point where I disagree with you is in your reading of the M/O graph. By this data set, there will be more buyers than sellers out to circa 2035, so we certainly are not due for a bear market for a long time, let alone already be in an indefinite bear market.

Keep up the good work.

With Best Wishes


This is a common misunderstanding. It’s not about the simple number of buyers and sellers. They do not buy and sell equal amounts of financial assets, after all.

It is about the ratio of buyers to sellers and the direction of change in that ratio – whether the number of buyers is growing relative to sellers, or vice versa. Hence the M/O is a ratio that measures this change over time. It’s how the angle of the population pyramid is changing, not its shape. Just as it’s the direction of stock market change and not its current pricing which matters to investors.

Hello Nick

Surely most stock market investment is made by institutions and billionaires. They are too smart to let their investments decline through lack of demand. 

If a sector or an individual company is making good profits or paying high dividends, or is reckoned to have good future prospects, then demand will increase. If the whole market is on an economic up-turn, most shares will rise in price, anticipating and then causing increased demand. Conversely, when the big boys see a down-turn coming, they sneeze sell and all the small investors catch a cold.

I believe the main reason the stock market has performed so poorly over time, is that there are many under-performing companies and only a few stars.

Whilst the Baby-Boomers will have some effect throughout their lifetimes, I think it will be minuscule beside the dynamic effect of changes in the world economy.

Kind regards


The reason the M/O ratio was compared to the stock market’s P/E ratio and not its simple price is to adjust for the points you make. Adjusted for company earnings (the “E” in P/E), how much were investors willing to pay (the “P” stands for “price”).

Most people who connect the stockmarket to demographics argue that we should invest in cruise ship companies and retirement village developers. My point is that the same argument which makes this seem like a good idea also applies to financial assets themselves. Just as retirees will be buying cruises and retirement village homes, so too will they no longer be buying stocks but selling them. You can’t argue one but not the other.

The final outcome is higher dividends from earnings for some companies, but stock prices falling nonetheless. This is not to say that some companies won’t grow earnings enough to offset the lower P/E ratios. It’s just that the “stock markets go up in the long run” mantra will fall apart on a broader scale, making diversification a driver of poor performance.

Before you go, one more reader mail about my book How the Euro Dies:

Hi Nick,

Your book arrived this morning and I have just finished reading it. The big eye opener to me was the Target 2 system, which explains why it has all gone so wrong. Thank you so much for explaining this to me in such a clear and concise manner.

I predicted that the euro would fail as soon as the Italians were allowed in, but for far less scientific reasons. In the 70s, I had dealings with a couple of Italian companies. I must stress that they were charming and honourable and above all, honest and I loved working for them. No, my problem was with the country itself and how it did things. 

Back in the day, fuel was very expensive so one could buy Italian fuel coupons in the UK. Naturally, Italians wanted to buy these coupons because they offered fuel at way below forecourt prices. When I declined, they would become abusive. I never got this abuse in East Germany when people wanted to buy my trousers.

More to the point was the currency. It came in three forms. Coins, bank notes and a vast array of filthy notes held together with layers of Sellotape, all promising a face value of X. I avoided these and insisted on proper notes, which caused a bit of a fuss, but nothing to worry about. 

The real trouble came with coinage. On a skiing holiday, lunch cost 900 lira. I gave the guy a grand and got a tiddly wink in exchange. Fair enough. On day ten, I gave him 9 tiddly winks this being 900 lira. He refused and insisted on another bank note.

This made eating and drinking in Italy a very dreary process because it meant getting change. The only way I found was to apply my own value of the money, since real currency was out of the question. So I took to taking anything that was not nailed down. This led to much screaming and arm waving, including at one stage a cook armed with a knife, but I always got my change. 

I felt that any country that treated guests like this, blatantly stealing, would have no worries in doing the same to partner states and thus would screw up the euro. 

Your explanation is of course much better, but since then, I have avoided Italy like the plague. Even when I had to drive through it to get to Romania, I filled up in France and did not stop until I reach Slovenia.  Interestingly, the closer one got to Italy, the scruffier the motorway filling stations became.

One thing is for sure. I want to get my small pensions away from where they are, so back to reading Sam’s book. I have decided on three areas – Gold, crypto and hydrogen. I just need to now figure out how to do this and with whom.


Readers can get a copy of my book How the Euro Dies here.

As for Sam Volkering’s area of expertise – investments with exponential growth potential – find out more here.

Nick Hubble
Editor, Fortune & Freedom