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What’s YOUR Investor Profile?

Eric Chemi, Investor Profile

With Eric Chemi, Senior Editor-at-Large, Data Journalism at CNBC

SigFig investor profile data suggests that investment portfolios align with demographics

They say “you are what you eat” but, in the world of investments, can we tweak that to “you are what you invest in”? In an interesting exercise, Chemi looked at data from SigFIg.com on investors’ portfolio holdings and parsed that by investor profile demographic information like age, median liquid net worth, home state and their political leanings (Democrat or Republican).  The goal was to see if investors can be profiled based on the stocks and other investments they hold, and answer that initial question—do your investments reflect your social, moral and other values?  If you look closely, there appears to be a pattern.

Familiarity with Companies Drives Stock Ownership

Moreover, as Peter Lynch advised, “own shares of companies that you understand.” Turns out, investors hold companies that they are familiar with. For example, investors that hold technology shares—such as Facebook, Google or Twitter—tend to be younger and tech-savvy, live in liberal-leaning “blue” states such as California, Washington, Oregon and Massachusetts, and are typically young investors building their careers, without a lot of money, and in the early stages of wealth building. Another example, investor profiles for the youngest set of portfolio holders in the bluest states show that they hold shares of environmentally-conscious electric-car maker, Tesla.

Analogously, older investors tend to—on average—hold companies they grew up with – blue chips that have been around for the past fifty years or more (such as Exxon Mobil and Johnson & Johnson) and companies that are strong players in “old world” sectors such as utilities, manufacturing, energy and pharmaceuticals. So people in “red” states tend to hold companies such as Walmart and energy companies that are less sensitive to the environment.  Investor profiles based on broad demographic categories line up time and again with specific stocks. Now think about your own portfolio and reflect on this – do your own stock holdings reflect who you are, where you live and your median net worth?

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

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Steve Pomeranz: Yeah, now I don’t know if you have your list handy, but a company like Walmart, is that a blue state or a red state?

Eric Chemi: Oh, Walmart is one of the reddest states, absolutely.  Walmart is the epitome of a red-state stock.  When you think about it, it’s headquartered in Arkansas and just the type of environment that it serves, it tends to be in a rural, semi-rural suburban type of places.  It’s not really a thing you see in big cities.

Steve Pomeranz: Not every stock tells you whether you’re from a red or a blue state.  Some don’t say anything, some are kind of neutral, right?

Eric Chemi: Right.

Steve Pomeranz: All right, I’ve got a list here, and I actually did print out kind of a spreadsheet, some of the stocks here.  If you own Berkshire Hathaway, what does that say about your median net worth?

Eric Chemi: For anyone who doesn’t know, Berkshire Hathaway, that’s Warren Buffet’s company.  Shares are very, very expensive; we’re talking hundreds of thousands of dollars to get one share.  They have the richest ownership base by far.  The average wealth of someone who owns even one share of Berkshire Hathaway, $3.2 million in liquid net worth, which is almost triple the second richest stocks,  it’s by far above anything else you see on the charts.  It makes sense, who’s the richest guy in America?  One of the two richest guys in America, Warren Buffet.  The people that want to be with him; they are also rich.  Again, you are what you own.

Steve Pomeranz: Yeah, but you know there’s also the B shares which are a fraction and they’re in the hundred-dollar range, so I don’t think that that would necessarily be the same.

Eric Chemi: Exactly, that’s why they had to make those B shares to try to reach out to a different audience, so they didn’t limit who was able to buy that stock.

Steve Pomeranz: Right.  What about a stock like Coke or Pepsi?

Eric Chemi: Coke or Pepsi, I’m trying to think.  I don’t remember them per say-

Steve Pomeranz: Okay, let me help you because I have it here.

Eric Chemi: Oh good, so you’re prepared.

Steve Pomeranz: I have Pepsi as a negative one on the sheet which is red.

Eric Chemi: Okay, they have a red state, yeah.

Steve Pomeranz: Yeah, so that was kind of interesting.  I didn’t really expect that.  I mean, I didn’t really know what to expect.  What was interesting too is a company like Wells-Fargo, which is one of the largest banks in America, is a red state, but Bank America or JP Morgan rather, was a blue state and I was thinking maybe because Wells-Fargo’s kind of western-based and JP Morgan is New York-based, right?

Eric Chemi: Exactly.  Think about Bank of America, where it’s profile is in terms of branches.  They have some California, they’ve got North Carolina, where they’ve historically had their headquarters in New York.  JP Morgan has more of that northeast feel, and Wells-Fargo definitely has a western feel to it.  Again, you’re seeing that it’s not necessarily always about industry, but, again, it’s about location and people being more familiar with the companies that they are familiar to, so then they buy those stocks.  Same thing with Coke and Pepsi, right? Who’s drinking sodas that you hear about from a political point of view?  “Oh, healthy eating and Michele Obama,” and all this type of thing, and then all the people that go against her and say, “Well, why are they telling us not to have our soda?” It makes sense that they might be red state stock.

Steve Pomeranz: Of course, the exception to that rule is that Coca-Cola is one of the largest holdings for Warren Buffet’s Berkshire Hathaway; he drinks it all the time, and he’s a pretty progressive guy.  I really wouldn’t call him a red state kind of guy at all.  There’s always the outliers and always something, so we’re really just talking generalities.  Let’s talk about median net worth.  This is liquid net worth.  I’ve got the list here.  If you own Merck, then your median liquid net worth is $900,000.  If you are getting down to the bottom of the list, if you own Apple—and I thought this was kind of interesting—your median net worth was $250,000.  What does this really tell us?  Do you discern any information from all this?

Eric Chemi: Yeah, so the interesting thing when you go to the article at CNBC.com, you’ll see the list of a hundred of the biggest companies and what those liquid net worth values are for each stock. But Apple at 250,000 represents basically the average investor in the database because Apple is so widespread and popular that everybody owns it, that it ends up just having a very average portfolio.  All these big-brand names like Merck and all the big blue chips—blue chips are owned by older people—and all these sorts of younger companies that aren’t blue chips yet, they’re owned by people with less money and they’re younger.

Steve Pomeranz: I guess you can say that those that have the most to lose own the safest of the companies, and those that have the least will take a lot more risk, and that seems pretty natural to me.  What about the wealthiest ten percent of investors; what kind of investments are they most likely to own?

Eric Chemi: The wealthiest people are owning a lot of banking stocks, a lot of healthcare stocks, and then big construction types of things.  If you think about, Honeywell, even industrials like DuPont, UA, United Technologies, these are the types of names that they own.  Really stable names that remind you of General Electric, for example, or you talked about IBM.  It’s that type of generation, that’s where the wealthiest people are owning.

Steve Pomeranz: What about international companies, are they owning the Bayers of the world and others like that?

Eric Chemi: Oh, absolutely.  When you look at the wealthiest people, they’re the ones that are most likely to be able to travel.  They own, by far, all the high-end international brands like Louis Vuitton, SAP, Bayer, even if these tickers, these stock tickers are not available on the US exchanges, they’re able to go ahead and buy them on the foreign exchange directly because they’re more exposed to just knowing these companies from their own personal experience.

Steve Pomeranz: Very interesting.  My guest Eric Chemi, CNBC Senior Editor at Large.  Eric, this was a pleasure as the first time.  Love to have you back.

Eric Chemi: Thank you, always happy to come back.