Robinhood traders have been copping a lot of flak from the investment community. For those who aren’t aware of the latest Robinhood (an online brokerage service) craze let me bring you up to speed. It all started back in the Occupy Wall Street movement with the founders of Robinhood stating recently:
“That was the one sort of cultural moment for defining what would become Robinhood. That stems from how it intersected with our individual lives. We were working in finance, and building technology for other financial institutions. And we realized our entire generation of consumers was feeling pretty left out from the way the financial system worked. We were making the top 1% of people wealthier.”
As a result Robinhood was created and was one of the first no commission brokers on the market. Combined with new users receiving free shares when they join, it was the perfect application to entice young traders.
When the Coronavirus crash started in February of this year, millions of people found themselves at home with a lot more time on their hands. With the record stimulus measures being introduced, this meant these people not only had time, but now also money to spend.
With Robinhood offering commission free trading, more than 3 million new accounts were opened by amateur traders and investors.
Against all odds one of the quickest recoveries ever recorded occurred on the stock market and these amateur traders were taking full advantage of it. On the one hand you have famous investors like Warren Buffet losing money by selling his Airline stocks and stating the market had run too hard. On the other hand you have these so called Robinhood traders being led by Dave Portnoy piling into the market and making lots of money.
Billionaire investor Leon Cooperman sums up what the majority of seasoned investors seem to be feeling about this situation:
They are just doing stupid things, and in my opinion, this will end in tears.
Now don’t get me wrong, I’m not here to condemn anyone’s view on this topic as I’ve been at the forefront of laughing at and creating memes of my own of these Robinhood traders. For me personally it’s all part of the initiation process for coming into the investment world so it’s harmless humour rather than any kind of real judgement.
What I do want to do though is take the time in this article to defend these Robinhood traders as we all share a lot in common with them.
Firstly, most of us come into the markets dreamy eyed and hoping to create a huge amount of wealth. Very quickly though the markets humble us into submission and we realise there is no easy way to make (and keep) money in the markets.
Now I’m not sure whether it fortunately or unfortunately, however these Robinhood traders have entered the market at potentially the best time in history. The market seems unstoppable and everything from micro caps to large caps seem to be running with nothing standing in their way.
Does this mean these amateur traders are making more money than most seasoned investors? Seems that way to me. This is probably the core reason why there is so much hate towards Robinhood traders.
Robbinhood Traders not spenders
One point that I think is important to highlight is the fact that millions of people who were given money for doing nothing, decided to spend their money trading and investing instead of consuming material goods.
This is absolutely something that they should be commended for. There are a million other wasteful ways that they could have spent their money, but they chose to try and make their money work for them.
This notion that the Smashed Avo generation, more commonly known as Gen Z, throw all their money away is simply not accurate. A study by Brag Media of 4,300 Gen Z people found that 75% were storing away money for investments purposes.
I don’t think is necessarily surprising considering they spent their teenage years dealing with the aftermath of the GFC. If we now add the COVID Pandemic, my personal view is the Gen Z population will be an extremely frugal generation.
Are they going to lose money by the time this is all over?
Much of the commentary being directed at the Robinhood traders is ultimately that they are going to lose their money. Now I do agree with this from a holistic perspective. This is absolutely the kind of market where beginners luck can create someone a small fortune.
The lure of lots of easy money will probably make it impossible for a new trader or investor to take that money and run. The result will be something that resembles what Leon Cooperman said above.
Another example of why I believe this will be the case is due to recent statistics which have shown Robinhood has approximately 6 million users holding approximately 12 million unique holdings. I’m sure you can do the maths, Robinhood traders are extremely concentrated with an average of only 2 stocks in their portfolio. If Tesla, Amazon or the FANG stocks starts to decline it would decimate the profiles of the majority of Robinhood accounts.
The million dollar question though is this such a bad thing in the long run?
Not sure about most of you but I blew up my account twice in my early investing years. Losing money in the markets is inevitable and part of the process to grow in your stock market craft.
So why are we treating Robinhood investors any differently to a normal trader or investor who starts their stock market career during a ‘normal’ market?
Reaching out for help
I want to finish off by highlighting an extremely tragic situation which occurred last week in the US. Bill Brewster who has an investing twitter profile tweeted that his wife’s cousin committed suicide after he thought that he had lost over $700,000 on Robinhood. Alex Kearns was in the prime of his life and obviously had an interest in the share market. Alex fits the bill of the young Robbinhood traders who decided not to throw away their money during COVID-19, rather opting to try and grow it trading stocks.
I wont get into the detail of Alex’s case as its not important for the purpose of this conversation. I only raise this example to remind us that there are real people on the other side of the screen and everyone is just doing their best to improve their financial situation.
If you find yourself experiencing a major loss then please reach out to someone. If you don’t feel comfortable telling your family or friends then find someone in the investment community. Regardless of how much money you have lost, there is always a way to work through it.
I hope you enjoyed this article. If you’re looking to take your Penny Stock Investing to the next level feel free pop in and learn more about my newly released investing course.