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Why Do Baby Boomers Hate Square?

By James Brumley - Mar 30, 2021 at 8:46AM

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They're not the most frequent users of such alternative payment platforms either.

For the most part, older investors own the same stocks as younger ones do. They may own them to differing degrees.

Tesla (TSLA 4.39%) is by far the favorite holding for anyone under the age of 57, for instance, according to stock trading middleman Apex Clearing's fourth-quarter report on the matter, while Apple (AAPL 1.92%) is the most common pick for the above-57 crowd. By and large, though, the preferred holdings for investors of any age appear mostly to be linked to sheer company size and/or that stock's supporting "story."

There's one name that's popular among millennials, Gen-Xers, and Gen-Zers that's conspicuously absent within most baby boomers' portfolios, though. That's payment processor Square (SQ 4.37%). It accounts for an average of at least 1% of positions held by investors between the ages of 18 and 56, but it doesn't even crack the top 20 for stocks held by people over the age of 57.

Grumpy old man.

Image source: Getty Images.

Why? Certainly, familiarity plays a role. While Gen-Xers (currently aged 41 to 56) weren't born into a world where the internet already existed, they're the generation that ushered in the era of computers' constant digital connectivity while they were young. Boomers didn't turn into adults in such a world. Indeed, neither broadband nor the mobile web were common until baby boomers were at least in their late 30s, but high-speed wireless connectivity is the key to Square's existence in the first place.

Then there's the other likely reason older investors aren't fans.

Square is not a household name for them

Almost everyone knows a little something about Square. This is the company that converts a smartphone into a credit card reader just by attaching a small, square-shaped swiping device into its mini-USB port. With a simple app, small proprietors typically ignored by credit card processing companies can use Square's tech to easily accept credit card payments.

Most people may not realize, however, that Square is so much more. Payroll, inventory management, loyalty programs, and even bank lending are now all part of its repertoire. This deep bench of offerings is a key reason the company's top and bottom lines have improved at a double-digit pace for over five consecutive years now.

Yet, there are clear generational dividing lines among users of these and other comparable digital payment tools. A 2018 survey performed by payment-tech services provider Early Warning Services indicated millennials were about 50% more likely than boomers to use a peer-to-peer payment platform than write a check or pay with cash. In this vein, nearly half of all millennials reported using a peer-to-peer (or P2P) payment service at least once a week, versus a more modest 32% for baby boomers. Gen-Xers are in between.

Square isn't your typical peer-to-peer payment processor, of course. With just a passing glance, its wares perform more like traditional point-of-sale systems and less like PayPal (PYPL 1.46%), which is still the leader of the P2P arena. Indeed, it's possible older consumers are paying for goods and services via Square without even realizing it.

Think bigger picture, though. While they're slowly coming around to newer technologies, boomers still lag all other demographics in terms of making mobile-based payments, smartphone ownership, and usage of social media. To the extent Warren Buffett's advice "buy what you know" is being heeded, older investors just don't know as much as the sub-56 crowd knows about Square. Their lack of interest as investors isn't surprising.

Priced richly, too

That being said, any perspective baby boomers may have on Square as an investment is squelched by its relatively steep valuation.

Don't misunderstand. Older investors aren't completely averse to paying a premium for the right quality name. After Apple, Apex Clearing's Q4 data says Tesla is a (distant) second-most-popular pick for boomers. These people are also big fans of Amazon (AMZN 2.33%) and Microsoft (MSFT 1.30%). None of these latter three picks are valued at less than 30 times trailing or projected profits; most cost considerably more.

But priced at 110 times next year's projected earnings -- an outlook that's more than 50% better than this year's estimated income -- the less-established Square fails to appeal to more cautious-minded older investors. They need certainties like those offered by grounded powerhouses Microsoft and Apple; Tesla is at least a calculated risk worth taking.

Bottom line

If you're a boomer who happens to own a stake in Square, don't sweat it. It's on the speculative side of the fence, but if the rest of your portfolio is balanced with less risky names, it may well make perfect sense for you. Likewise, if you're under the age of 57 and don't feel comfortable owning Square, not holding it isn't a mistake. Everyone's situation and mix of investments is different, as it should be. The only real mistake to make with a name like Square is owning it but not being exactly sure why you do or how to assess its ever-changing risk profile.

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Stocks Mentioned

Block, Inc. Stock Quote
Block, Inc.
SQ
$83.18 (4.37%) $3.48
Apple Inc. Stock Quote
Apple Inc.
AAPL
$148.34 (1.92%) $2.80
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$264.90 (1.30%) $3.40
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,267.96 (2.33%) $51.75
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$756.20 (4.39%) $31.83
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$78.78 (1.46%) $1.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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