BETTING ON BOOMERS : PROJECTING SPENDING HABITS OF DEFINING GENERATION CAN REAP BIG PAYOFF FOR INVESTORS.

Byline: Virginia Munger Kahn The New York Times

Baby boomers - the 78 million Americans born between 1946 and 1964 - have been roiling the country since they started wriggling into the world half a century ago.

In the 1950s, the United States furiously built schools to educate them. In the 1960s and '70s, the country was rocked by their teen-age rebellion. And in the 1980s, their scramble for housing pushed real estate prices sky high.

As they've moved through society, the boomers' impact on Wall Street has been as powerful as their effect on everything else.

From the baby-food companies that fed them in the 1950s to the retailers who clothed them in the consumption-crazed 1980s, boomers have driven many companies' earnings - and their stock prices - way up.

But it is precisely the size of the baby boom generation that makes basing an investment strategy on its projected habits so dicey. To bet on the baby boomers - 31 percent of the population - is like saying, ``I want to buy stocks,'' said Patrick Adams, manager of the Kemper Growth Fund.

Compounding the trouble, many stockbrokers - who know the lure of a simple idea like generational investing - are quick to recommend the approach and to gloss over the difficulties.

But their advice has endless variations. Just buy financial stocks, they say. Health care stocks. Entertainment and travel stocks. Home improvement stocks. Nursing home stocks. Even the stocks of vitamin sellers and bicycle companies.

``It's kind of an open-ended subject,'' said Eric Miller, chief investment strategist at Donaldson, Lufkin & Jenrette.

Still, if they move with caution, investors can profit handsomely from a baby boom approach. But to do so, they must understand the strategy's limits and exercise patience. And they must realize that success takes a lot more homework than just finding out where the fretful fortysomethings down the block are putting their children's college money.

Like other types of ``theme'' investing, the boomer angle can be a good first cut, leading investors in a lucrative direction. By scouting out a big growth area, they are more likely to find high-potential companies, said Michael Moe, director of growth strategy at Montgomery Securities.

The baby boom angle can also help investors uncover areas they may want to shun. Consider retailing. People accumulate goods in their mid-20s, said Richard Hokenson, the chief economist at Donaldson, Lufkin. But the number of Americans turning 25 peaked in 1986. ``Retailing is a negative,'' he said.

Also on their way out: children's clothing and toys. ``Toys `R' Us isn't a growth company anymore,'' said William Dodge, strategist at Marvin & Palmer, a global investment manager based in Wilmington, Del. The peak year for the ``baby echo,'' babies born to boomers, was 1990.

What sector is the best boomer play? Many money managers point to the investment industry.

The boomers are worried about both retirement and their children's college costs, the managers say, and that means heavy inflows of cash for Wall Street.

Dodge notes that as the percentage of working people over age 35 waxes and wanes, so does the portion of household worth that is put into stocks and bonds. The last peak in the over-35 category occurred in the early 1960s - just a few years before the last peak in household investment.

Those investments plummeted in the 1970s, he said, but for some time they have been rising along with the decline in interest rates and the aging of the baby boomers, the youngest of whom will be 32 this year.

``I think this is one of the greatest financial events in my lifetime,'' Alfred Kugel, senior investment strategist at Stein Roe & Farnham, said about the boomer investment drive.

Such inflows may mean broad increases in general stock levels. ``All boats will rise,'' Kugel said, suggesting that stock index funds would be a fine investment choice.

Most people are not just index investors, though, and that fact reveals the incompleteness of the baby boom angle. Getting the theme right means little if investors choose the wrong stock; they must also comb the field for the most promising companies. ``Stock selection still is the key,'' said Moe.