Pandemic Villains: Robinhood(taibbi.substack.com)
taibbi.substack.com
Pandemic Villains: Robinhood
https://taibbi.substack.com/p/pandemic-villains-robinhood
198 comments
They did something mildly interesting, but I think you're giving them too much credit for stuff that's either unimportant or possibly harmful. (I would put a low barrier to entry in the possibly-harmful column.)
It's nice that free trades are the new normal and I don't think there is anything wrong with payment for order flow, but on the other hand, $7 is just not that bad a price. If you can't afford $7 trades then either you are trading too often, or you should stick to paying off your credit card debt and building up an emergency fund.
Vanguard's UI isn't pretty but it's functional and not hard to use. How often are you going to use it anyway?
It's nice that free trades are the new normal and I don't think there is anything wrong with payment for order flow, but on the other hand, $7 is just not that bad a price. If you can't afford $7 trades then either you are trading too often, or you should stick to paying off your credit card debt and building up an emergency fund.
Vanguard's UI isn't pretty but it's functional and not hard to use. How often are you going to use it anyway?
Exactly. Applauding them for lowering trading fees to $0 is like applauding a pharmaceutical company for bringing down the cost of opiates. Or applauding a cigarette maker for making cigarettes cheaper.
In other words, the cost of opiates is not the bigger problem in the industry. And the problem with cigarettes is not the cost. It's the overusage on both fronts.
If making trades free leads to more day trading (it does), then we are most certainly going to see a net negative effect on consumers.
In other words, the cost of opiates is not the bigger problem in the industry. And the problem with cigarettes is not the cost. It's the overusage on both fronts.
If making trades free leads to more day trading (it does), then we are most certainly going to see a net negative effect on consumers.
> Exactly. Applauding them for lowering trading fees to $0 is like applauding a pharmaceutical company for bringing down the cost of opiates. Or applauding a cigarette maker for making cigarettes cheaper.
Trading stocks doesn't lead people to physical dependence, nor does it typically ruin their lives. Buy-and-hold will almost always lead to returns, provided that a portfolio is diversified enough. Smoking, taking opiates recreationally, etc. almost always lead to premature death.
Robinhood (and Wall Street overall) isn't beyond criticism, but this seems like a particularly bonkers analogy.
Trading stocks doesn't lead people to physical dependence, nor does it typically ruin their lives. Buy-and-hold will almost always lead to returns, provided that a portfolio is diversified enough. Smoking, taking opiates recreationally, etc. almost always lead to premature death.
Robinhood (and Wall Street overall) isn't beyond criticism, but this seems like a particularly bonkers analogy.
Gameification of investing can only be a bad thing, because it turns investing into basically legal gambling. And gambling very much leads to addiction and financial struggles. Making investing easy due to a low entry barrier, combined with the advertising, seems to very much have that goal.
For long term investments, low fees per trade don't matter. And with day trading the retail investors will always lose against the HFT guys. The only people profiting from average joes doing day trading are the HFT funds and companies like Robinhood.
For long term investments, low fees per trade don't matter. And with day trading the retail investors will always lose against the HFT guys. The only people profiting from average joes doing day trading are the HFT funds and companies like Robinhood.
>Gameification of investing can only be a bad thing
I keep seeing people referring to RH somehow "gamifying" the experience, but I just don't see it, it feels like just throwing a buzzword at RH until that buzzword sticks.
The only thing they did in terms of UI is made it very simple and convenient to use. If that's what counts as "gamification" in 2020, then I am all for it. I just thought that this term usually referred for stuff like "achievements", some goals/scores, objectives completed, etc. RH has none of that. All it has is a very good UI that is pleasant to use.
If someone could clarify what RH does that constitutes "gamification", I am curious to hear.
I keep seeing people referring to RH somehow "gamifying" the experience, but I just don't see it, it feels like just throwing a buzzword at RH until that buzzword sticks.
The only thing they did in terms of UI is made it very simple and convenient to use. If that's what counts as "gamification" in 2020, then I am all for it. I just thought that this term usually referred for stuff like "achievements", some goals/scores, objectives completed, etc. RH has none of that. All it has is a very good UI that is pleasant to use.
If someone could clarify what RH does that constitutes "gamification", I am curious to hear.
Couldn't agree more. Just because the UI doesn't look like it was designed by a committee of boomers and is instead pleasant to look at and use, doesn't mean it's "gameified" somehow. I've had a RH account for years, and the only "gameification" I've ever seen was the little game they had to get off the wait list for their debit card (perish the thought!). Actually trading and evaluating stocks or other assets is nearly the same as what you'd get on Etrade or whatever, just displayed more pleasantly and without fees.
Also, does anyone really believe that we would be better off if everyone were paying transaction fees for trades? The door for HFTs buying trading data is open and can't easily be closed (unless there were regulatory action, which seems unlikely), so what good does it do anyone to pay fees if she can avoid it?
The whole article just seems like an unfocused attack on finance as a whole, whether the anger is justified or not.
Also, does anyone really believe that we would be better off if everyone were paying transaction fees for trades? The door for HFTs buying trading data is open and can't easily be closed (unless there were regulatory action, which seems unlikely), so what good does it do anyone to pay fees if she can avoid it?
The whole article just seems like an unfocused attack on finance as a whole, whether the anger is justified or not.
>does anyone really believe that we would be better off if everyone were paying transaction fees for trades?
I don't like throwing accusations around randomly, but I feel like people arguing FOR fees in this thread (which is really strange to see) are experiencing a strong case of "biting off the nose to spite the face".
The only defense for fees in the thread I see just seems to boil down to "well, if you think those fees are too much, then you probably would have been better off not trading", which just sounds like straight up gatekeeping of people who aren't wealthy or those who prefer to invest a bit more manually than just throwing all their cash in a mutual fund/etf once a month.
I don't like throwing accusations around randomly, but I feel like people arguing FOR fees in this thread (which is really strange to see) are experiencing a strong case of "biting off the nose to spite the face".
The only defense for fees in the thread I see just seems to boil down to "well, if you think those fees are too much, then you probably would have been better off not trading", which just sounds like straight up gatekeeping of people who aren't wealthy or those who prefer to invest a bit more manually than just throwing all their cash in a mutual fund/etf once a month.
Do you have any data that suggests that $0 transaction fees leads to a net gain for consumers?
Because I think the point the naysayers are making is that $0 transaction fees are not actually a benefit.
Because I think the point the naysayers are making is that $0 transaction fees are not actually a benefit.
>Because I think the point the naysayers are making is that $0 transaction fees are not actually a benefit.
I don't know what kind of data you are looking for in support of my point, but I think it is a net positive for a person when they get something for free instead of paying for it if the experience becomes unchanged otherwise.
I traded using platforms that required fees before RH, and those small transaction fees add up and make certain trading strategies straight up unviable, unless the amounts you trade are giant. For a small retail trader like me, it certainly has saved me a ton of money over time and allowed me to execute on trading strategies I simply couldn't before.
So, basically, the lack of transaction fees just opens up more opportunities for more people, without taking away anything from the rest. I count that as a net win.
I don't know what kind of data you are looking for in support of my point, but I think it is a net positive for a person when they get something for free instead of paying for it if the experience becomes unchanged otherwise.
I traded using platforms that required fees before RH, and those small transaction fees add up and make certain trading strategies straight up unviable, unless the amounts you trade are giant. For a small retail trader like me, it certainly has saved me a ton of money over time and allowed me to execute on trading strategies I simply couldn't before.
So, basically, the lack of transaction fees just opens up more opportunities for more people, without taking away anything from the rest. I count that as a net win.
Though I agree with you that the stock market is more gambling, I do not agree that it is because of Robinhood. It’s a byproduct of how the stock price isn’t based in reality: it’s just based on investor perceptions. I don’t think the “barrier” of trading fees is really enough to say that it’s not about gambling in the first place. I might even go as far as saying that it’s purely accidental that the stock of a reputable company will likely go up. If investors get into a feedback loop of “investors don’t want to buy X stock”, the stock price will plummet regardless of how well the company actually does. You have to have enough investors with faith in the stock for it to stay up.
I think we’d do better judging the stock market for this systematic issue rather than some app which makes it easier to exploit that issue. Is robinhood part of the problem? Sure. But it’s not at the root of the problem.
I think we’d do better judging the stock market for this systematic issue rather than some app which makes it easier to exploit that issue. Is robinhood part of the problem? Sure. But it’s not at the root of the problem.
I absolutely agree. I don't remember where it comes from, but the stock market was discribed as "trading today hopes for tomorrow based on yesterday's information". Robinhood, and others (i am so fed up by YouTube adds for Etoro, Traderepublic and so on) are just using this fact. Both things are a problem. And the very root seems to be greed, not sure of that can be fixed.
> Buy-and-hold will almost always lead to returns, provided that a portfolio is diversified enough. Smoking, taking opiates recreationally, etc. almost always lead to premature death.
This is ignoring the original point, though. Commission fees are practically irrelevant to a buy and hold strategy because of the time scales involved. Commission fees only matter for trading, which does in fact ruin lives.
This is ignoring the original point, though. Commission fees are practically irrelevant to a buy and hold strategy because of the time scales involved. Commission fees only matter for trading, which does in fact ruin lives.
In many ways a world where there were some baseline fees and it was annoying to sign up made it so no regulation was needed. Because it was naturally a bit burdensome to get started, there was no need to make law on it.
I don't trust anything to be done about it in 2020 - but it is clear if this was a time when regulators had a bit more sway that basic rules would be put in place to make this type of gambling behavior hard.
I don't trust anything to be done about it in 2020 - but it is clear if this was a time when regulators had a bit more sway that basic rules would be put in place to make this type of gambling behavior hard.
What about people who put $100 a week in. Paying commissions on this, each week, is definitely unworkable. Was it possible before to do before Robinhood?
Yes, most platforms had either no-transaction-fee index mutual funds or free etf trades. This generally didn’t apply to individual stocks but someone just putting away $100/week savings should be avoiding individual stocks anyway.
> Trading stocks doesn't lead people to physical dependence, nor does it typically ruin their lives.
While this is true, what RH have done is turn trading into a form of gambling. That industry is HEAVILY regulated, and for a good reason: gambling addiction has ruined enough families' lives to warrant strict - and increasingly invasive - responsible gambling controls.[ß]
One of the most effective controls we have for gambling guardrails is the absolute rule of not allowing anyone to bet on credit. Not only do we block credit card deposits, we also have to restrict depositing via methods that themselves allow funding through credit cards. RH, on the other hand, has taken fire for not only allowing margin trades, but making it all too easy for non-institutionals to:
A) trade on margin (read: bet on credit) - and
B) trade complex options where the downside can be multiples of the perceived execution amounts
A gambling company doing this would have their license revoked and likely have their directors hauled before regulators to answer some very uncomfortable questions.
> Buy-and-hold will almost always lead to returns, provided that a portfolio is diversified enough.
Also true. But please keep in mind that RH encourages its userbase to engage in back-and-forth trading, using design tricks and visual cues to trigger impulses.[0] A responsible retail investor executing a long-term trade for a few thousand every two months is not the customer Robinhood makes their money out of.
Stating the obvious: I work for a gambling company.
ß: I have a pending piece on the various privacy invasions our industry is forced to engage in, but the first versions did not sit well with our comms team.
0: Before his leave, Matt Levine wrote about RH dropping at least some of the worst aspects: https://www.bloomberg.com/opinion/articles/2020-08-10/robinh...
While this is true, what RH have done is turn trading into a form of gambling. That industry is HEAVILY regulated, and for a good reason: gambling addiction has ruined enough families' lives to warrant strict - and increasingly invasive - responsible gambling controls.[ß]
One of the most effective controls we have for gambling guardrails is the absolute rule of not allowing anyone to bet on credit. Not only do we block credit card deposits, we also have to restrict depositing via methods that themselves allow funding through credit cards. RH, on the other hand, has taken fire for not only allowing margin trades, but making it all too easy for non-institutionals to:
A) trade on margin (read: bet on credit) - and
B) trade complex options where the downside can be multiples of the perceived execution amounts
A gambling company doing this would have their license revoked and likely have their directors hauled before regulators to answer some very uncomfortable questions.
> Buy-and-hold will almost always lead to returns, provided that a portfolio is diversified enough.
Also true. But please keep in mind that RH encourages its userbase to engage in back-and-forth trading, using design tricks and visual cues to trigger impulses.[0] A responsible retail investor executing a long-term trade for a few thousand every two months is not the customer Robinhood makes their money out of.
Stating the obvious: I work for a gambling company.
ß: I have a pending piece on the various privacy invasions our industry is forced to engage in, but the first versions did not sit well with our comms team.
0: Before his leave, Matt Levine wrote about RH dropping at least some of the worst aspects: https://www.bloomberg.com/opinion/articles/2020-08-10/robinh...
Your comment reads weirdly... Are you really justifying a business model in hindsight as a beneficial gatekeeper? Fees are a business model, that's it.
Let's get everyone in the market with small money, test what works for you with almost no money and then when you found your investment strategy, scale it.
Sounds like product development to me or do you think only people are allowed to code and "waste their lifetime" when they got x?
Let's get everyone in the market with small money, test what works for you with almost no money and then when you found your investment strategy, scale it.
Sounds like product development to me or do you think only people are allowed to code and "waste their lifetime" when they got x?
Robinhood has been criticized a bunch for taking payment for order flow, but I've yet to see someone actually make a quantitative case that if you make an $x trade you will lose $y on average because of PFOF. The argument instead always relies on a zero-sum figuring that if someone else is willing to pay for the order flow it must be costing you somehow, but that's not really how it works.
That’s not the problem with making money off order flow.
The problem is that it fundamentally misaligns incentives: while Robinhood makes money the more people transact (and is the reason its fee structure and UX incentivize transacting), it’s not in peoples’ financial best interest to transact as often as possible.
The problem is that it fundamentally misaligns incentives: while Robinhood makes money the more people transact (and is the reason its fee structure and UX incentivize transacting), it’s not in peoples’ financial best interest to transact as often as possible.
But that's true of brokers that charge customers per trade too: they too are incentivized for customers to trade more.
Maybe. I’d be curious to see a breakdown of a traditional broker’s revenue compared to Robinhood.
I bet Robinhood makes most of its money off order flow (it was founded by HFT traders, after all), while traditional brokers make more money off fees, reinvesting, upselling other products, etc.
I bet Robinhood makes most of its money off order flow (it was founded by HFT traders, after all), while traditional brokers make more money off fees, reinvesting, upselling other products, etc.
IIRC traditional brokers make most of their money off of interest on their float. I wish I could remember where this came up because without a solid reference it sounds utterly absurd.
I'm not sure if this is the source you meant, but patio11 wrote a good overview of various brokerages' revenue sources: https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...
That doesn't surprise me at all, given that most insurers make all their money off investing the premiums before claims happen.
When part of your service is to hold money, it's kinda the natural business model. Of course, this is not working out well for insurers in a world of very low interest rates (which is one of the reasons lots of insure-tech startups are getting funded now).
When part of your service is to hold money, it's kinda the natural business model. Of course, this is not working out well for insurers in a world of very low interest rates (which is one of the reasons lots of insure-tech startups are getting funded now).
Exactly. And apparently their order flow compensation differs in a key way — they make more money not just based on how often you trade, but on the size of the bid-ask spread.
> Also, Robinhood’s compensation model differs from E-Trade and other firms. As an analysis by the investment bank Piper Sandler put it this summer, “Robinhood receives a fixed rate per spread (vs. a fixed rate per share by the other eBrokers).”
> Also, Robinhood’s compensation model differs from E-Trade and other firms. As an analysis by the investment bank Piper Sandler put it this summer, “Robinhood receives a fixed rate per spread (vs. a fixed rate per share by the other eBrokers).”
All the other retail brokers except interactive brokers also take payment for order flow
IBKR Lite takes payment for order flow, which is IBKR’s commission free account type. You can look up a brokers 606 report for info.
Whats funny though is options trading on robinhood is "free". I've tested robinhoods execution versus charles schwabb, theres really not much difference. Schwabb charges .65 cents a contract, if you make a 50k options trade, it could be hundreds to open and close. Robinhood is giving these brokerages a run for their money
The issue is that the only people with access to the information to make a case are the ones making money on it. There's a lack of transparency.
And it's not just a theoretical concern, the article states that Robinhood has already been fined for not executing orders at the best price.
And it's not just a theoretical concern, the article states that Robinhood has already been fined for not executing orders at the best price.
If you can't afford $3K to open an account, you can't afford to day-trade.
Fentanyl is a great drug in the hands of trained professionals who know what they're doing. But it shouldn't be sold on the street to just anybody because it's exceptionally dangerous if you're not trained. Robinhood is giving away the digital equivalent of Fentanyl to everybody. This can only end in disaster.
Fentanyl is a great drug in the hands of trained professionals who know what they're doing. But it shouldn't be sold on the street to just anybody because it's exceptionally dangerous if you're not trained. Robinhood is giving away the digital equivalent of Fentanyl to everybody. This can only end in disaster.
Or a more direct comparison is that they are bringing legalized going to the masses.
No, if you can't afford $3k, you can't afford to day-trade. Other people have other risk tolerances.
> I believe Vanguard requires $3k to open a Roth
Do you really use you Roth account for day-trading? I don't think it's what it is for.
> Robinhood is giving away the digital equivalent of Fentanyl to everybody.
Absolutely baseless claim. You can analogize anything to anything - that does not make them equal. Stock trading is in no way similar to a deadly drug. At least no more than any other activity that may be addictive to a small minority - like eating, drinking coffee, playing D&D, having sex or reading articles on the Internet about medieval armor making. None of it is Fentanyl.
Do you really use you Roth account for day-trading? I don't think it's what it is for.
> Robinhood is giving away the digital equivalent of Fentanyl to everybody.
Absolutely baseless claim. You can analogize anything to anything - that does not make them equal. Stock trading is in no way similar to a deadly drug. At least no more than any other activity that may be addictive to a small minority - like eating, drinking coffee, playing D&D, having sex or reading articles on the Internet about medieval armor making. None of it is Fentanyl.
All the attention around Robinhood centers on daytrading. But it works perfectly fine for the buying and holding usecase. It's a smooth polished app. Easy signup flow.
Some might argue it’s precisely this good UX and low fees that incentivize risk-seeking behavior in a set of users who are largely uneducated about the risks of frequent trading, margin, investing on gut feel, etc.
I think a major factor in popularizing Robinhood and introducing and exacerbating the gambling degeneracy are places like wallstreetbets and corners of twitter and discord where you're constantly exposed to screenshots of heavy losses and gains. You look at the 20-100k and beyond returns these crazy people get and you rationalize you can do it too.
Soon you find yourself in a community that helps you (in their own way) deal with your losses while promoting the next play. It also doesn't help that being in a bubble, the adage "stonks only go up" has been true since the March crash and meme stocks outperform and achieve extreme valuations against all conventional wisdom.
Robinhood is the shovel-seller that has undercut the other players with lower prices and lower barrier to entry and better UI. The Fed is the one pumping this asset bubble that keeps the narrative going: stocks only go up and fundamentals don't matter.
Soon you find yourself in a community that helps you (in their own way) deal with your losses while promoting the next play. It also doesn't help that being in a bubble, the adage "stonks only go up" has been true since the March crash and meme stocks outperform and achieve extreme valuations against all conventional wisdom.
Robinhood is the shovel-seller that has undercut the other players with lower prices and lower barrier to entry and better UI. The Fed is the one pumping this asset bubble that keeps the narrative going: stocks only go up and fundamentals don't matter.
Agreed, and there’s another angle to that community too. They literally refer to each other and themselves as retards. There is a comical, almost aggressive pride in being uninformed and purely in it for the high. Nobody there thinks they are going to be a trader, they just want to get rich. Super interesting.
Robinhood's UI is just great for beginners but not for seasoned traders. TD Ameritrade has far superior UI for people who know what they're doing.
"They absolutely crush it" - No, they don't. Not even close.
"They absolutely crush it" - No, they don't. Not even close.
I agree with your points. Another defense of RH (from an unusual angle):
Just for inversing, $7 trades are not a big deal, as others said (if it looks they are, stop trading as much). Also, free or super cheap trades encourage people to participate in zero-sum risky trading schemes (HFT, complex options, etc.) where they are at a big disadvantage against pros.
That said, I still see RH as a very useful thing. Many (most?) people starting to invest will try many stupid things and complex strategies and will lose a lot of money. Sometimes more than once before they learn not to do some things. Sim accounts seldom work for this -- the lessons require losing real money.
It is a lot better to lose $1k that you can ill afford to lose early in life than lose $100k that you can ill afford to lose later. My 2c.
Just for inversing, $7 trades are not a big deal, as others said (if it looks they are, stop trading as much). Also, free or super cheap trades encourage people to participate in zero-sum risky trading schemes (HFT, complex options, etc.) where they are at a big disadvantage against pros.
That said, I still see RH as a very useful thing. Many (most?) people starting to invest will try many stupid things and complex strategies and will lose a lot of money. Sometimes more than once before they learn not to do some things. Sim accounts seldom work for this -- the lessons require losing real money.
It is a lot better to lose $1k that you can ill afford to lose early in life than lose $100k that you can ill afford to lose later. My 2c.
Why can't the other three copy Robinhood's UI?
"Why aren't more millenials financially savvy"
"LOL. Look at those dummies trading stocks".
I stopped reading when I realized this was a hit piece against Robinhood when they brought up the leverage bug. It wasn't Robinhood's fault, it's not like they told the user to do it.
If anyone is to blame for the amount of dumb stock plays, it is Wall Street Bets (/r/wallstreetbets).
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Also the reason young people flooded the market when the pandemic hit wasn't that we suddenly had time (not entirely at least), it was the many saw the market as overheated and not worth the price.
When stocks took a 30%+ dip in March, it was basically free money to buy them combined with the fact we could get in to huge share prices with fractional shares.
Once again, I have to say: Millienials and Gen Z are much smarter than they are given credit for. Gen X+ should be asking themselves why they are making choices that Millenials and younger refuse to.
"LOL. Look at those dummies trading stocks".
I stopped reading when I realized this was a hit piece against Robinhood when they brought up the leverage bug. It wasn't Robinhood's fault, it's not like they told the user to do it.
If anyone is to blame for the amount of dumb stock plays, it is Wall Street Bets (/r/wallstreetbets).
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Also the reason young people flooded the market when the pandemic hit wasn't that we suddenly had time (not entirely at least), it was the many saw the market as overheated and not worth the price.
When stocks took a 30%+ dip in March, it was basically free money to buy them combined with the fact we could get in to huge share prices with fractional shares.
Once again, I have to say: Millienials and Gen Z are much smarter than they are given credit for. Gen X+ should be asking themselves why they are making choices that Millenials and younger refuse to.
>When stocks took a 30%+ dip in March, it was basically free money to buy them
In March, people were speculating a world-wide depression due to the pandemic and hoarding toiletries. People who saw it as free money were, uh, incredibly optimistic.
In March, people were speculating a world-wide depression due to the pandemic and hoarding toiletries. People who saw it as free money were, uh, incredibly optimistic.
If you take a look at 10 or 30 year trends then it's not really that optimistic at all. For instance, Detla Airlines was at 60 bucks a share before things tanked. There was talk about airline bailouts etc.
I bought it at around 20 dollars a share. This was the riskiest stock I purchased as it was theoretically possible they'd completely dissolve. But, at 20 dollars a share Delta should eventually go back up to 60. It might take 10 years for Delta to get back to 40 but it'd still be profit.
Anyone trading on a time scale of less than a few years is basically always optimistic. Buy and hold is generally the safest strategy. And the famous quote is timing in market beats timing into the market. In March you were able to effectively get on both trains simultaneously.
I bought it at around 20 dollars a share. This was the riskiest stock I purchased as it was theoretically possible they'd completely dissolve. But, at 20 dollars a share Delta should eventually go back up to 60. It might take 10 years for Delta to get back to 40 but it'd still be profit.
Anyone trading on a time scale of less than a few years is basically always optimistic. Buy and hold is generally the safest strategy. And the famous quote is timing in market beats timing into the market. In March you were able to effectively get on both trains simultaneously.
If your bear case is a 10-year recovery to 40 from 20 that's a CAGR of 7.18%, about the same as the long-term average CAGR of the S&P. The difference is that the S&P doesn't have bankrupty risk, whereas airlines do [1]. So on a risk-adjusted basis, that kind of trade isn't too appealing unless you'd done significant research to show that the risk of bankruptcy or a buyout by a competitor at a reduced valuation was unlikely.
While you might have done that kind of research, the article implies (correctly, in my view) that the typical Robinhood user did not. No surprise; that sort of research is time consuming and requires significant familiarity with the industry. Yet airlines, cruise companies, and other risky assets were preferred by Robinhood users throughout the pandemic.
[1] https://en.wikipedia.org/wiki/List_of_airline_bankruptcies_i.... These lists omit airlines that get bought up for pennies on the dollar by competitors.
While you might have done that kind of research, the article implies (correctly, in my view) that the typical Robinhood user did not. No surprise; that sort of research is time consuming and requires significant familiarity with the industry. Yet airlines, cruise companies, and other risky assets were preferred by Robinhood users throughout the pandemic.
[1] https://en.wikipedia.org/wiki/List_of_airline_bankruptcies_i.... These lists omit airlines that get bought up for pennies on the dollar by competitors.
I think they bought those stocks(options) because they knew that of course those industries would be bailed out and thus there would be a huge catalyst event that would increase the implied volatility and thus the profits they make. And the other and perhaps more important factor was that those stocks were simply much cheaper than spy shares, and therefore their options would be cheaper too.
>of course those industries would be bailed out
This is exactly the point; be careful of thinking like this. Some of the biggest profits come from being contrarian to the market view.
SK: https://www.reuters.com/article/us-hanjin-shipping-debt/bank...
USA: https://www.nytimes.com/2014/09/30/business/revisiting-the-l...
UK: https://en.wikipedia.org/wiki/Black_Wednesday
This is exactly the point; be careful of thinking like this. Some of the biggest profits come from being contrarian to the market view.
SK: https://www.reuters.com/article/us-hanjin-shipping-debt/bank...
USA: https://www.nytimes.com/2014/09/30/business/revisiting-the-l...
UK: https://en.wikipedia.org/wiki/Black_Wednesday
To me, this is the kind of thinking that justifies today's blinders about it: it basically can never go down for extended periods because people always buy the dip, but also the government will also always support struggling companies if a crisis happens and companies traded on the stock market have no risk to be dissolved.
Essentially that means there's not any real risk to investing now apart from options or penny stocks. I mean, congrats, we might've eliminated risk, but surely something else has to give to support that.
Essentially that means there's not any real risk to investing now apart from options or penny stocks. I mean, congrats, we might've eliminated risk, but surely something else has to give to support that.
Well, with things like inflation these stocks HAVE to go up. A dollar in 2022 is stronger than a dollar in 2020 so stocks need to AT LEAST outpace inflation to make it worthwhile at all.
Now, government bailouts is a different can of worms and I am not entirely sure my opinion on that. Generally I would have to say I am against it, as it doesn't actually favor businesses that can properly adapt to the markets and new blockers. But, things like dropping the fed rate to encourage consumer spending does seem okay to me.
If we removed bailouts then there would be risk involved. And there is still risks involved in stocks. Not all stocks only go up. Nikola is basically a pump and dump scheme that likely wont be around in 3 years to grow with the rest of your portfolio. Plenty of companies seem flash growth and then equalize down to something more reasonable.
However, in general, if you buy diverse stocks and ETFs or index funds you should only see it go UP over 10-20 years. You will have dips, and you can even have a recession. The people most impacted by dips in stocks are people trying to retire during that retraction period.
What you described seems to be like intuition though. Stocks are high, people can't afford them and they cannot see a lot of growth. When stocks drop you can capture more growth potential for cheaper. So it seems like a natural progression that people would buy back into the markets, thus helping the markets stabilize.
Now, government bailouts is a different can of worms and I am not entirely sure my opinion on that. Generally I would have to say I am against it, as it doesn't actually favor businesses that can properly adapt to the markets and new blockers. But, things like dropping the fed rate to encourage consumer spending does seem okay to me.
If we removed bailouts then there would be risk involved. And there is still risks involved in stocks. Not all stocks only go up. Nikola is basically a pump and dump scheme that likely wont be around in 3 years to grow with the rest of your portfolio. Plenty of companies seem flash growth and then equalize down to something more reasonable.
However, in general, if you buy diverse stocks and ETFs or index funds you should only see it go UP over 10-20 years. You will have dips, and you can even have a recession. The people most impacted by dips in stocks are people trying to retire during that retraction period.
What you described seems to be like intuition though. Stocks are high, people can't afford them and they cannot see a lot of growth. When stocks drop you can capture more growth potential for cheaper. So it seems like a natural progression that people would buy back into the markets, thus helping the markets stabilize.
Well, with things like inflation these stocks HAVE to go up. A dollar in 2022 is stronger than a dollar in 2020...
This isn't what the word "inflation" means? Besides inflation is not that high now. (Admittedly, it's not as low as we pretend it is...)
This isn't what the word "inflation" means? Besides inflation is not that high now. (Admittedly, it's not as low as we pretend it is...)
Yeah, someone else corrected me here as I inverted inflation in the wrong direction. It doesn't change the logical premise of the strength of money changing is what will motivate increased value in stocks either way.
I was tired and only half paying attention, but I should have vetted this better before posting it. My bad.
I was tired and only half paying attention, but I should have vetted this better before posting it. My bad.
No worries, but I remain unconvinced. There are nations that have seen high inflation, and that hasn't been so good for their stock markets.
Low inflation and high inflation are entirely different things, especially if you mean hyperinflation. During high inflation, monetary transactions break down because nobody wants to hold cash. Why would you sell things today if you would be better off selling tomorrow? Business breaks down, and that's reflected in the stock market.
> Anyone trading on a time scale of less than a few years is basically always optimistic. Buy and hold is generally the safest strategy.
I find it mind boggling that people can still believe so deeply that infinite growth is possible on a finite planet.
Just looking at climate change as one example, in 20 years or so we're looking a serious portion of the planet being uninhabitable. We'll be having trouble producing enough food to feed people. And climate change is just one of the many systemic problems that we're facing.
I find it mind boggling that people can still believe so deeply that infinite growth is possible on a finite planet.
Just looking at climate change as one example, in 20 years or so we're looking a serious portion of the planet being uninhabitable. We'll be having trouble producing enough food to feed people. And climate change is just one of the many systemic problems that we're facing.
> I find it mind boggling that people can still believe so deeply that infinite growth is possible on a finite planet.
I find it mind boggling that people still can't believe infinite growth is possible when all it takes is combinatorial explosion from the outputs becoming inputs in new products (CPU -> computers -> AWS -> SAAS -> some app, etc)
> We'll be having trouble producing enough food to feed people.
The 1970s called and they want the Club of Rome limit to growth/Malthusianism back
I find it mind boggling that people still can't believe infinite growth is possible when all it takes is combinatorial explosion from the outputs becoming inputs in new products (CPU -> computers -> AWS -> SAAS -> some app, etc)
> We'll be having trouble producing enough food to feed people.
The 1970s called and they want the Club of Rome limit to growth/Malthusianism back
Sure you can. It's pretty simple. Growth in resource consumption and energy usage in the past 80 years tracked extremely closely to economic growth.
Combinatorial explosion in production possibilities does not mean anything close to combinatorial expansion in possibilities for growth. It's an increase, but nowhere near factorial.
Here's an example. Imagine that you are a barber shop. What advantage does 10 years of computing advances give you? You might be able to save 15 hours in accounting time and lower appointment friction by 20% over phone calls. The expansion in the productive possibilities linked to tech was combinatorial, but even in a period of ten years it barely improved your business.
The truth is that every frontier has a point of diminishing returns. Your point is that you believe that we can iterate on the value - resources front indefinitely. Well, empirical data just disagrees with you. We're at 2% annual growth on average and slowing down, despite increases in consumption, and even less than that when correcting for population growth.
Yes, Malthiusianism is wrong. You can't equate Malthiusianism with the belief that infinite growth is impossible, that's just a total non-sequitur.
We might still see a lot of economic growth left in the future, but it's clear there will be plateaus and it's clear that we are nearing one.
Combinatorial explosion in production possibilities does not mean anything close to combinatorial expansion in possibilities for growth. It's an increase, but nowhere near factorial.
Here's an example. Imagine that you are a barber shop. What advantage does 10 years of computing advances give you? You might be able to save 15 hours in accounting time and lower appointment friction by 20% over phone calls. The expansion in the productive possibilities linked to tech was combinatorial, but even in a period of ten years it barely improved your business.
The truth is that every frontier has a point of diminishing returns. Your point is that you believe that we can iterate on the value - resources front indefinitely. Well, empirical data just disagrees with you. We're at 2% annual growth on average and slowing down, despite increases in consumption, and even less than that when correcting for population growth.
Yes, Malthiusianism is wrong. You can't equate Malthiusianism with the belief that infinite growth is impossible, that's just a total non-sequitur.
We might still see a lot of economic growth left in the future, but it's clear there will be plateaus and it's clear that we are nearing one.
> Growth in resource consumption and energy usage in the past 80 years tracked extremely closely to economic growth
Growth in power consumption of laptops, is falling.
Growth in total material consumption for say cars will fall too, as less maintenance is required for electrical engine vs internal combustion.
Many people believe we've reached peak oil, as demand will decrease. So it's not so clear.
> The expansion in the productive possibilities linked to tech was combinatorial, but even in a period of ten years it barely improved your business.
If you are focusing on one business, there's little change between barbering now and not just 10 years ago, but even 200 years ago. But small changes are enough - even taking appointments online frees the barber time. So there's some growth.
> The expansion in the productive possibilities linked to tech was combinatorial, but even in a period of ten years it barely improved your business.
However, you are missing the 99% of businesses that are impossible with 1800 technology.
This cause growth, and much more than the little growth seen in barbering.
> The truth is that every frontier has a point of diminishing returns
Diminishing returns are perfectly compatible with asymptotic behavior.
> We might still see a lot of economic growth left in the future, but it's clear there will be plateaus and it's clear that we are nearing one
You don't understand (or you do, but don't want to see it): as long as f(yu) >= f(yt) for yu>yt, there's infinite growth.
It may be less and less, if it's asymptotically going to 0, but it will never reach g=0.
Plateaus are fine - just like recessions. Yes, the economy is not strictly increasing with a time granularity that too small. But group years by pack of 20, do a moving average and you'll see a strictly increasing function. g>0 which means infinite growth is possible, even if g may not be to your liking.
Perfect? No. Good enough? Yes!
Growth in power consumption of laptops, is falling.
Growth in total material consumption for say cars will fall too, as less maintenance is required for electrical engine vs internal combustion.
Many people believe we've reached peak oil, as demand will decrease. So it's not so clear.
> The expansion in the productive possibilities linked to tech was combinatorial, but even in a period of ten years it barely improved your business.
If you are focusing on one business, there's little change between barbering now and not just 10 years ago, but even 200 years ago. But small changes are enough - even taking appointments online frees the barber time. So there's some growth.
> The expansion in the productive possibilities linked to tech was combinatorial, but even in a period of ten years it barely improved your business.
However, you are missing the 99% of businesses that are impossible with 1800 technology.
This cause growth, and much more than the little growth seen in barbering.
> The truth is that every frontier has a point of diminishing returns
Diminishing returns are perfectly compatible with asymptotic behavior.
> We might still see a lot of economic growth left in the future, but it's clear there will be plateaus and it's clear that we are nearing one
You don't understand (or you do, but don't want to see it): as long as f(yu) >= f(yt) for yu>yt, there's infinite growth.
It may be less and less, if it's asymptotically going to 0, but it will never reach g=0.
Plateaus are fine - just like recessions. Yes, the economy is not strictly increasing with a time granularity that too small. But group years by pack of 20, do a moving average and you'll see a strictly increasing function. g>0 which means infinite growth is possible, even if g may not be to your liking.
Perfect? No. Good enough? Yes!
This cat is catching downvotes but that Club of Rome thing and (Limits of Growth, which is a paper this group published) is interesting economic stuff I learned just a few seconds ago - interesting click-hole starts (as always) on Wikipedia https://en.m.wikipedia.org/wiki/Club_of_Rome
It's worth two minutes of reading
It's worth two minutes of reading
> This cat is catching downvotes but that Club of Rome thing and (Limits of Growth, which is a paper this group published) is interesting economic stuff
I'm used to downvotes here since facts are not popular (bitcoin ...)
The "infinite growth in a finite world" is a traditional line from the school of thought this Club of Rome started.
However, as you correctly found out in the wikipedia article, it's dubious at best "the forecasts of the world's future are very sensitive to a few unduly pessimistic key assumptions. The Sussex scientists also claim that the Meadows et al. methods, data, and predictions are faulty, that their world models (and their Malthusian bias) do not accurately reflect reality"
I gave a very simple example (combinatorial explosion) that shows how the whole thing is wrong, and why (here, attacking a key assumption) - but there are many many more holes.
It's not really redeemable, after having been proved wrong more than wrong - just like Malthusianism actually.
> It's worth two minutes of reading
Indeed, in just 2 minutes you can notice even more holes - I just pointed to the most glaring one for people used to algorithm.
Hopefully you will not fall prey to ideological arguments based on a castle of cards with such a flimsy base
I'm used to downvotes here since facts are not popular (bitcoin ...)
The "infinite growth in a finite world" is a traditional line from the school of thought this Club of Rome started.
However, as you correctly found out in the wikipedia article, it's dubious at best "the forecasts of the world's future are very sensitive to a few unduly pessimistic key assumptions. The Sussex scientists also claim that the Meadows et al. methods, data, and predictions are faulty, that their world models (and their Malthusian bias) do not accurately reflect reality"
I gave a very simple example (combinatorial explosion) that shows how the whole thing is wrong, and why (here, attacking a key assumption) - but there are many many more holes.
It's not really redeemable, after having been proved wrong more than wrong - just like Malthusianism actually.
> It's worth two minutes of reading
Indeed, in just 2 minutes you can notice even more holes - I just pointed to the most glaring one for people used to algorithm.
Hopefully you will not fall prey to ideological arguments based on a castle of cards with such a flimsy base
Every time I read the Hacker News comments for any article to do with economics or trading I'm painfully reminded of the Gell-Mann amnesia effect[0]. The latest javascript front end framework sure but fates help anybody who takes investing advice from this place. Reminds me of the infamous r/buttcoin subreddit. On the front page there you can see when the sub was created. From then until now while they were busy being permabears bitcoin's price has exploded over 1000x.
[0]https://en.wikipedia.org/wiki/Michael_Crichton#GellMannAmnes...
[0]https://en.wikipedia.org/wiki/Michael_Crichton#GellMannAmnes...
Infinite growth isn't necessarily the concept. While it's somewhat related, there is a bit of a divergence here.
As I said in another comment, stocks will naturally rise at the very least due to inflation. Prices will go up because the value of the dollar goes up, and the companies perceived value is still roughly the same and grew with inflation.
If inflation is on average around 2%, then stocks ideally increase 2% year over year. This can happen to infinity. That's not the same as infinite growth, but it does hit a lot of the same concepts.
Add this to efficiencies over time, expansion of service offerings which might include capturing new verticals, companies have plenty of room for growth.
This is also why people invest into specific stocks depending on their objectives and risk tolerance. Investing in Apple isn't likely to make you a crap load of money today. But, it's fairly stable. It should outpace inflation so it's a good way to save money with a higher possible yield than say a high interest savings account.
You can also apply this to dividend stocks. Some people make their gains off constantly returning dividends even if the stock itself doesn't increase drastically year over year.
And then you factor in that a lot of companies don't have physical products today. So you can squeeze out even more gains because you can have a relatively fixed cost pricing model that scales well. This is more and more common today than 30 years ago.
As for bringing in an externality like climate change, in an ideal capitalistic situation you'd have companies that would pop up that address these issues thus creating value.
But, if we look at these types of existential threats (which I totally believe are real and matter, don't want to twist that at all) they essentially collapse our current economic system. Therefore, literally nothing matters in terms of buying or selling stocks. We will be facing a massive global crisis that overshadows economic gains to the point that the stock market doesn't matter, and fiat currency is largely diminished.
As I said in another comment, stocks will naturally rise at the very least due to inflation. Prices will go up because the value of the dollar goes up, and the companies perceived value is still roughly the same and grew with inflation.
If inflation is on average around 2%, then stocks ideally increase 2% year over year. This can happen to infinity. That's not the same as infinite growth, but it does hit a lot of the same concepts.
Add this to efficiencies over time, expansion of service offerings which might include capturing new verticals, companies have plenty of room for growth.
This is also why people invest into specific stocks depending on their objectives and risk tolerance. Investing in Apple isn't likely to make you a crap load of money today. But, it's fairly stable. It should outpace inflation so it's a good way to save money with a higher possible yield than say a high interest savings account.
You can also apply this to dividend stocks. Some people make their gains off constantly returning dividends even if the stock itself doesn't increase drastically year over year.
And then you factor in that a lot of companies don't have physical products today. So you can squeeze out even more gains because you can have a relatively fixed cost pricing model that scales well. This is more and more common today than 30 years ago.
As for bringing in an externality like climate change, in an ideal capitalistic situation you'd have companies that would pop up that address these issues thus creating value.
But, if we look at these types of existential threats (which I totally believe are real and matter, don't want to twist that at all) they essentially collapse our current economic system. Therefore, literally nothing matters in terms of buying or selling stocks. We will be facing a massive global crisis that overshadows economic gains to the point that the stock market doesn't matter, and fiat currency is largely diminished.
>Prices will go up because the value of the dollar goes up
sorry to nitpick but inflation is the value of the dollar going _down_. if the value of a dollar were to increase, the price of a thing denominated in dollars (i.e. stocks) would decrease (you can buy more with fewer now-more-valuable dollars), ceteris paribus.
sorry to nitpick but inflation is the value of the dollar going _down_. if the value of a dollar were to increase, the price of a thing denominated in dollars (i.e. stocks) would decrease (you can buy more with fewer now-more-valuable dollars), ceteris paribus.
Thank you for the correction. The logic applies the same, but I did invert the effects.
See, that's the thing. Big doesn't mean infinite. Big only needs to be really big.
Haven’t you heard of space?
Maybe you know something Buffet doesn't. I believe he fully divested from the airlines recently.
I traded on the thesis of "I don't care, I'll wait". I mean, either money becomes worthless to have or the stock market goes back up.
To me, it seems the upside of _not_ trading is much smaller than the upside of betting that the market will go back up eventually like it has every time so far.
I have a very tiny (10 shares) amount in cruise lines. The shares were $150 / share pre-COVID, I bought them for $30 / share. So my downside is $300 (minus tax benefits) but my upside is $1,200 (minus taxes). Nothing changed about those companies except having to weather the pandemic.
I even made $70 on call options in a week for the same company. Definitely not trying my luck again but it was an education.
To me, it seems the upside of _not_ trading is much smaller than the upside of betting that the market will go back up eventually like it has every time so far.
I have a very tiny (10 shares) amount in cruise lines. The shares were $150 / share pre-COVID, I bought them for $30 / share. So my downside is $300 (minus tax benefits) but my upside is $1,200 (minus taxes). Nothing changed about those companies except having to weather the pandemic.
I even made $70 on call options in a week for the same company. Definitely not trying my luck again but it was an education.
>I mean, either money becomes worthless to have or the stock market goes back up.
It could have just remained low for a long period, and you may have been forced to cash out to stay off the street depending on how much you put up. No one was able to predict it in March.
It could have just remained low for a long period, and you may have been forced to cash out to stay off the street depending on how much you put up. No one was able to predict it in March.
Given he put up $300 I doubt it's a real concern.
People putting up money they can afford to lose just don't care about the risk, but that risk-free attitude is somehow getting into mainstream investing advice.
"Buy when there is blood in the streets..."
If you're going to criticize someone's outlook, it's probably worth mentioning that they were actually correct.
I mean, if it was easy to call it as free money back in March, then clearly everything is even more-so free money today.
The prevailing logic just seems to be "never not buy stocks at any point"
The prevailing logic just seems to be "never not buy stocks at any point"
Within the context of wallstreetbets the prevailing logic and thesis as to why you should buy the dip after the March crash was simply: "Money printer goes brrr" and "stonks only go up".
I agree, some of the accusations against Robinhood sound like the accusations against car manufacturers for causing car crashes.
Sure, car manufacturers do need to implement safety measures to the best of their ability, and this only occurred after govt introduced regulations requiring it.
Similarly we would need regulations for leveling the playing field for fintech apps, but its unfair to place all the blame on just Robinhood.
Sure, car manufacturers do need to implement safety measures to the best of their ability, and this only occurred after govt introduced regulations requiring it.
Similarly we would need regulations for leveling the playing field for fintech apps, but its unfair to place all the blame on just Robinhood.
I am not sure if they always had it but, by default you cannot access options trading.
You have to seek it out, read a short document then click "Yes" or something similar.
To get margin trading you again have to seek it out and know specifically what you are looking for and pay them $4.99 / month.
I am not sure if they always had those behind opt-ins but I can't imagine a platform allowing margin trading on free accounts.
You have to seek it out, read a short document then click "Yes" or something similar.
To get margin trading you again have to seek it out and know specifically what you are looking for and pay them $4.99 / month.
I am not sure if they always had those behind opt-ins but I can't imagine a platform allowing margin trading on free accounts.
I don't think Robinhood had fractional share trading in March, did they?
Hm. I did look this up, I could've sworn they had it longer. It looks like fractional shares released in Dec 2019.
https://blog.robinhood.com/news/2019/12/12/fractional-shares...
https://blog.robinhood.com/news/2019/12/12/fractional-shares...
It was slowly rolled out, some users had it. Now I think everyone gets it.
You say that the market was overheated but then you say you bought in at the dip because it was free money but what if the market was still overheated at the dip? I wouldn't be so smug about such a simplistic strategy and YOLOing your meager savings away as a generation.
I bought on the dip, and if it dipped more I would have bought more. I'm not that bullish on cash right now, two dips would actually have been better, but needed to hedge on the eventuality you described.
So you're saying we shouldn't trade leveraged options on margin based on what side of the yard a dog does it's business on? /s
If you can get past being offended by the tone, this is a good article and it is on the side of the younger traders. It is unreasonable to expect 20 year olds, of any generation, to resist gambling disguised as investing, especially in the middle of stock bubble, when the full array of engagement tricks, honed to perfection by the likes of FB, Twitter, etc, is used to keep them trading. Unless you really know what you are doing, and very few do, this is not a domain were low friction is always a good thing.
Do you have data that 'trading' is how the app is being used? Does anyone? I find the article frustrating because it doesn't have data to prove it's core assertion.
Full disclosure, I've been using Robinhood, for a several years, to buy small amounts of stocks or ETFs I want, with limit orders, when volatility drives the price down. Everything I buy I intend to hold for a *long time.
And I really appreciate that they offer low fees, in % terms, on small orders. So it allows me to gain experience as an investor, not trader.
Full disclosure, I've been using Robinhood, for a several years, to buy small amounts of stocks or ETFs I want, with limit orders, when volatility drives the price down. Everything I buy I intend to hold for a *long time.
And I really appreciate that they offer low fees, in % terms, on small orders. So it allows me to gain experience as an investor, not trader.
There is only so much order flow they could get if most people did what you do. The fact that the have been down in high volatility days indicates to me there is plenty of trading going on.
Picking and timing stocks is not "financially savvy".
Have you seen the Robinhood interface, it's gamified to the extreme, and you expect 20 year olds to be mature enough to resist temptation?
Yes? I've been using Robinhood since I was 20ish. You really think 20 year olds are that immature? They are just as capable of making smart financial decisions as someone older.
Additionally, when you are young, your financial decisions should be riskier. It's actually the smart thing to do.
Additionally, when you are young, your financial decisions should be riskier. It's actually the smart thing to do.
I think it should be mentioned that "risker" in this context generally means "a diversified, growth-focused, stock portfolio", and not "all in bets on a few stocks picked from /r/wallstreetbets".
I'm not sure I agree. I generally agree with Buffett on it: "diversification is protection against ignorance. It makes little sense if you know what you are doing."
If a person is willing to spend time learning some the basics of finance, and learning about different companies, I think they would be fine with just picking a few stocks. They just need to be watched carefully. As they start to have more capital, they should look to diversify and look to take on less risk.
Plus, everyone wants different things. Many on /r/wallstreetbets see gambling on the stock market as a way to improve their lives, and I don't think it is the worst option. A risky stock investment is better than wasting money on a sports car or something.
In general, I think when you are very young a very risky investment is not a bad thing. As long as the money isn't needed for other things.
If a person is willing to spend time learning some the basics of finance, and learning about different companies, I think they would be fine with just picking a few stocks. They just need to be watched carefully. As they start to have more capital, they should look to diversify and look to take on less risk.
Plus, everyone wants different things. Many on /r/wallstreetbets see gambling on the stock market as a way to improve their lives, and I don't think it is the worst option. A risky stock investment is better than wasting money on a sports car or something.
In general, I think when you are very young a very risky investment is not a bad thing. As long as the money isn't needed for other things.
I'm not arguing about picking stocks as an investment option. I'm arguing that the "common knowledge" that younger people should pick risker investments is because they have the years to survive short-term bear markets. They don't need conservative parts of their portfolio to protect against short-term recessions.
I just feel like I'm starting to see more people throw around the "I'm young so I can make riskier investments" excuse when they put all of their investment money into a select few long shot stocks, and still make out worse than any simple fund.
I just feel like I'm starting to see more people throw around the "I'm young so I can make riskier investments" excuse when they put all of their investment money into a select few long shot stocks, and still make out worse than any simple fund.
Warren Buffett knew what he was doing, but the median Robinhood trader doesn't.
Plus no one says you have to be 100% conservative.
I do dumb stock purchases but I also own shares of indexes. There is nothing wrong with a "YOLO" into a stock or option you believe in as long as you can afford losing it.
I do dumb stock purchases but I also own shares of indexes. There is nothing wrong with a "YOLO" into a stock or option you believe in as long as you can afford losing it.
Yes, there is nothing wrong with gambling, so long as the amounts are affordable. This is less of a defense of Robinhood than it might seem...
The human brain isn't done maturing until our mid-20s. Plus there is less experience to draw on. I do think 20 year olds will be less prudent with money than someone who is 40 or 60.
> I do think 20 year olds will be less prudent with money than someone who is 40 or 60.
And?
If you can trust them to get behind the wheel of a car with lives at their fingertips, to drink and smoke and do with their bodies as they wish, I don't see why we're wringing hands about their financial prudence.
And?
If you can trust them to get behind the wheel of a car with lives at their fingertips, to drink and smoke and do with their bodies as they wish, I don't see why we're wringing hands about their financial prudence.
> You really think 20 year olds are that immature?
You will think that too when you reach 40.
> Additionally, when you are young, your financial decisions should be riskier. It's actually the smart thing to do.
Only if you ended up winning. If you lost, then it was the stupid thing to do.
You will think that too when you reach 40.
> Additionally, when you are young, your financial decisions should be riskier. It's actually the smart thing to do.
Only if you ended up winning. If you lost, then it was the stupid thing to do.
>You will think that too when you reach 40
Oh please, get off your high horse. I'm only a couple years away from 40, many of my friends have adult children, and I don't think the average 20 year old is some drooling idiot who can't handle life.
Most 20 year olds are smarter, have more self control, and more financially savvy than my parents, who are in well into their 60s.
Oh please, get off your high horse. I'm only a couple years away from 40, many of my friends have adult children, and I don't think the average 20 year old is some drooling idiot who can't handle life.
Most 20 year olds are smarter, have more self control, and more financially savvy than my parents, who are in well into their 60s.
I don't think there's a high horse here. It's just how life works. If you've truly managed your early twenties so well, that looking back now with more perspective you don't see anything you could have handled much better, you can congratulate yourself for being a rare specimen.
I, personally, am looking forward to my 60s to understand what I'm doing wrong right now.
> Most 20 year olds are smarter, have more self control, and more financially savvy than my parents, who are in well into their 60s.
This might be a regional thing. Around here, statistics show that more and more young people are getting their finances in a state that's difficult to recover from before they reach 30.
I, personally, am looking forward to my 60s to understand what I'm doing wrong right now.
> Most 20 year olds are smarter, have more self control, and more financially savvy than my parents, who are in well into their 60s.
This might be a regional thing. Around here, statistics show that more and more young people are getting their finances in a state that's difficult to recover from before they reach 30.
I started investing in my 20's too, fortunately had a few good mentors who taught me the basics. Am talking the general population.
Yes.
It seems that if the response of governments was different in terms of their monetary policy, the outcome could have been a global deflationary crisis. Instead, it appears that the there is instead a global inflationary crisis. But if you think it's good that the stocks go up, then it's not a crisis at all.
Most of them are basically gambling, not investing. You talk to enough of them, they can’t tell why a stock goes up or down. They point to this double top or flag pattern and say yeah you need to buy now. They get “tips” from someone at a stock board and buy or sell. It’s very very close to what the late 99s look like. Robinhood helped them along for sure but is not all their fault
>Most of them are basically gambling, not investing. You talk to enough of them, they can’t tell why a stock goes up or down.
To be fair, that's all of retail trading. Unless you are buying and holding a fund, then any sort of trading is gambling. The talking heads on CNBC are just as insightful as the kids on /r/wallstreetbets.
To be fair, that's all of retail trading. Unless you are buying and holding a fund, then any sort of trading is gambling. The talking heads on CNBC are just as insightful as the kids on /r/wallstreetbets.
The word you're looking for is 'speculating'. I.e. gambling...
Eh, the main problem with frequent trading is transaction costs (fees + bid/ask spread), if that cost is low then they are just increasing volatility (if anything) but not changing expectation (relative to a relevant basket of stock they are trading).
> I stopped reading when I realized this was a hit piece against Robinhood when they brought up the leverage bug. It wasn't Robinhood's fault, it's not like they told the user to do it.
IIRC FINRA has regulations explicitly prohibiting this situation. In this situation Robinhood was either negligent in not verifying a trading regulation that explicitly exists, or was incompetent enough to not know about it.
While blaming the user may apply in some way here, it is Robinhood's responsibility.
IIRC FINRA has regulations explicitly prohibiting this situation. In this situation Robinhood was either negligent in not verifying a trading regulation that explicitly exists, or was incompetent enough to not know about it.
While blaming the user may apply in some way here, it is Robinhood's responsibility.
> I stopped reading when I realized this was a hit piece against Robinhood when they brought up the leverage bug. It wasn't Robinhood's fault, it's not like they told the user to do it.
It might sound terribly naive these days but financial institutions shouldn't offer their clients products that do not suit clients needs. The caveat emptor rule could only be used in relations to other financial institutions not business or retail clients.
After 1997 Asian financial crisis some exporters successfully challenged banks for being sold currency options (fairly simple instruments)...
It might sound terribly naive these days but financial institutions shouldn't offer their clients products that do not suit clients needs. The caveat emptor rule could only be used in relations to other financial institutions not business or retail clients.
After 1997 Asian financial crisis some exporters successfully challenged banks for being sold currency options (fairly simple instruments)...
What is the correct spelling of "millennial".
I got a recruiting email a while ago from Robinhood. They listed one metric: the number of times per day their typical user uses the app. That means they are optimizing for engagement. Just like how YouTube optimizing for engagement causes problems, so too will a trading platform.
Related:
Kodak Is Relevant Again, or "The stock market is a video game that people play on their phones"
https://www.bloomberg.com/opinion/articles/2020-07-30/kodak-...
Kodak Is Relevant Again, or "The stock market is a video game that people play on their phones"
https://www.bloomberg.com/opinion/articles/2020-07-30/kodak-...
That never made sense since the bulk of Kodak's chemical manufacturing prowess was spun off decades ago into Eastman Chemical.
Matt Levine expressed this perfectly back in April
The weird thing about the coronavirus crisis is that it simultaneously (1) caused a stock market crash and (2) eliminated most forms of fun. If you like eating at restaurants or bowling or going to movies or going out dancing, now you can’t. If you like watching sports, there are no sports. If you like casinos, they are closed. You’re pretty much stuck inside with your phone. You can trade stocks for free on your phone. That might be fun? It isn’t that fun, compared to either (1) what you’d normally do for fun or (2) trading stocks not in the middle of a recessionary crisis, but those are not the available competition. The available competition is “Animal Crossing” and “Tiger King.” Is trading stocks on your phone more fun than playing “Animal Crossing” or watching “Tiger King”? [..] I gather that for some people the answer is yes.
If you believe the boredom thesis of the current retail rally, that is good news, because that thesis is basically countercyclical: The worse the economy is, the more bored investors will be. If stocks sell off because the coronavirus crisis is longer and worse than expected, there will be even fewer entertainment options and more people will turn, in desperation, to buying stocks on their phones. If someone finds a magic cure for the virus tomorrow, stocks will rally and all the new retail investors will happily sell into the rally at the top and go back to their other, more entertaining, entertainments.
The weird thing about the coronavirus crisis is that it simultaneously (1) caused a stock market crash and (2) eliminated most forms of fun. If you like eating at restaurants or bowling or going to movies or going out dancing, now you can’t. If you like watching sports, there are no sports. If you like casinos, they are closed. You’re pretty much stuck inside with your phone. You can trade stocks for free on your phone. That might be fun? It isn’t that fun, compared to either (1) what you’d normally do for fun or (2) trading stocks not in the middle of a recessionary crisis, but those are not the available competition. The available competition is “Animal Crossing” and “Tiger King.” Is trading stocks on your phone more fun than playing “Animal Crossing” or watching “Tiger King”? [..] I gather that for some people the answer is yes.
If you believe the boredom thesis of the current retail rally, that is good news, because that thesis is basically countercyclical: The worse the economy is, the more bored investors will be. If stocks sell off because the coronavirus crisis is longer and worse than expected, there will be even fewer entertainment options and more people will turn, in desperation, to buying stocks on their phones. If someone finds a magic cure for the virus tomorrow, stocks will rally and all the new retail investors will happily sell into the rally at the top and go back to their other, more entertaining, entertainments.
IDK if that is a perfect take at all. Sports plowed on, new shows, movies, and games were released. The only thing I see that went down was the available investments that could be made.
If you are an investor you are going to have a hard time investing into companies because there aren't going to be a lot of physical companies being founded and you'll see a decrease in internet companies being founded. Also, starting a business would be seen as risky with the unclear future of the pandemic and its impact on the economy.
This is why we seen stock and real estate investments rise. You add that to the fed rate cuts, and these are basically the only two mainstream investments that can be made.
Most investors into stocks aren't individuals like you and me who would otherwise go out dancing or go to bars. While there was a surge of individual investments, the bigger firms are attributed for creating the huge waves in the markets. Do you think that Warren Buffet/Berkshire decide to invest in retail stocks because he was bored due to not being able to go out clubbing? And when he buys stocks in something it outpaces what the entirety of WSBs does in puts/calls. And thats just one firm.
So, I find it hard to believe that the lack of entertainment (which was only really an issue at the very beginning of the pandemic, as baseball/basketball/football all carried on and plenty of games/shows/movies have come out) is the cause here.
If you are an investor you are going to have a hard time investing into companies because there aren't going to be a lot of physical companies being founded and you'll see a decrease in internet companies being founded. Also, starting a business would be seen as risky with the unclear future of the pandemic and its impact on the economy.
This is why we seen stock and real estate investments rise. You add that to the fed rate cuts, and these are basically the only two mainstream investments that can be made.
Most investors into stocks aren't individuals like you and me who would otherwise go out dancing or go to bars. While there was a surge of individual investments, the bigger firms are attributed for creating the huge waves in the markets. Do you think that Warren Buffet/Berkshire decide to invest in retail stocks because he was bored due to not being able to go out clubbing? And when he buys stocks in something it outpaces what the entirety of WSBs does in puts/calls. And thats just one firm.
So, I find it hard to believe that the lack of entertainment (which was only really an issue at the very beginning of the pandemic, as baseball/basketball/football all carried on and plenty of games/shows/movies have come out) is the cause here.
> Sports plowed on, new shows, movies, and games were released.
No - sports and movie releases were suspended for multiple months, and games and shows that released into that window of lowered competition did crazy good business.
No - sports and movie releases were suspended for multiple months, and games and shows that released into that window of lowered competition did crazy good business.
Here is a list of stuff that was released in May, 2020. 2 months removed from the response to the pandemic: https://www.lofficielusa.com/film-tv/the-best-movies-and-tv-...
Not 100% of that was completely new IP, but it was new. And there were even new things released in April. I admit it was far lower than what would likely have been released without covid, but there was content being put out still. I admit that I was annoyed with the lack of content, and still am. But to suggest that I filled that time with stock trading seems like a stretch.
Also, none of this addresses my other point. Individual investors do not make up a majority of stock purchases. So to assume that the average Joe being bored at home lead to rallies in retail stocks just doesn't jive. What does jive is the decline in other investment opportunities and having large firms shift their investments into the only options they really had; Stocks and real estate.
However, real estate even became too prohibitive for a lot of investors due to the fed rate cut leading to tons of home buying. This is a sector that is largely composed of individual investors. Therefore, they were forced into stocks exclusively.
I would simply need a lot more data to support that individuals being bored lead to massive movements in stocks. in 2016 14% of stocks were owned by individual investors. Let's assume a 100% increase due to the media drought and thats 28%. That is not enough to truly influence large parts of the market into the hikes we've seen. Especially considering that during this time there was a lot of financial uncertainty for these individual investors. Many didn't know if they'd have paychecks coming in (take a look at the mortgage forbearance to see how many people assumed they wouldn't have money). So how many new investors joined in on their piece of the pie when they were also strapped for cash? I'd be surprised if it was 100% increase. The only people that could take advantage of the dips were people that had were likely already in the market and had consistent money coming in.
Not 100% of that was completely new IP, but it was new. And there were even new things released in April. I admit it was far lower than what would likely have been released without covid, but there was content being put out still. I admit that I was annoyed with the lack of content, and still am. But to suggest that I filled that time with stock trading seems like a stretch.
Also, none of this addresses my other point. Individual investors do not make up a majority of stock purchases. So to assume that the average Joe being bored at home lead to rallies in retail stocks just doesn't jive. What does jive is the decline in other investment opportunities and having large firms shift their investments into the only options they really had; Stocks and real estate.
However, real estate even became too prohibitive for a lot of investors due to the fed rate cut leading to tons of home buying. This is a sector that is largely composed of individual investors. Therefore, they were forced into stocks exclusively.
I would simply need a lot more data to support that individuals being bored lead to massive movements in stocks. in 2016 14% of stocks were owned by individual investors. Let's assume a 100% increase due to the media drought and thats 28%. That is not enough to truly influence large parts of the market into the hikes we've seen. Especially considering that during this time there was a lot of financial uncertainty for these individual investors. Many didn't know if they'd have paychecks coming in (take a look at the mortgage forbearance to see how many people assumed they wouldn't have money). So how many new investors joined in on their piece of the pie when they were also strapped for cash? I'd be surprised if it was 100% increase. The only people that could take advantage of the dips were people that had were likely already in the market and had consistent money coming in.
Sports, shows, movies, and games are all essentially free (or already paid for via a handful of subscription services).
Travel, concert tickets, expensive restaurants, and wine are not free, and are all currently cancelled.
Most high-income millennials I know (including myself) spend a lot more on airline tickets than movie tickets.
So it may not be an entertainment vacuum but it is an entertainment spending vacuum.
Your point that most investors still are not individuals is fair, but that doesn't explain Robinhood's growth specifically.
Travel, concert tickets, expensive restaurants, and wine are not free, and are all currently cancelled.
Most high-income millennials I know (including myself) spend a lot more on airline tickets than movie tickets.
So it may not be an entertainment vacuum but it is an entertainment spending vacuum.
Your point that most investors still are not individuals is fair, but that doesn't explain Robinhood's growth specifically.
It's not a perfect take, but a contributing one.
Robinhood is the Instagram of stock trading. Can we really knock the founders of Robinhood for making stock trading so seamless and addictive and amping up the gamification to its highest level. The legacy brokerages have been guilty of turning stock trading into entertainment for years, thankfully just poorly. CNBC for the most part is entertainment. If anything the legacy brokerages like IB/Schwab/Etrade were incompetent in not making the jump on usability and offering innovations like fractional trading widely.
How does one slow down Robinhood to make speculative trading less attractive - make their UI worse? Stop innovations like fractional trading?
I feel we as a civilization have uncorked a financial poison pill in the innovations of Robinhood. We will just have to ingest and process it to move forward, there is no way to go back. There will be a price to way in lost savings and lives.
How does one slow down Robinhood to make speculative trading less attractive - make their UI worse? Stop innovations like fractional trading?
I feel we as a civilization have uncorked a financial poison pill in the innovations of Robinhood. We will just have to ingest and process it to move forward, there is no way to go back. There will be a price to way in lost savings and lives.
> Can we really knock the founders of Robinhood for making stock trading so seamless and addictive and amping up the gamification to its highest level.
Do we knock instagram for mental health issues for youth? Yes.
Do we knock tobacco companies for making cheap/addictive products that are detrimental to health? Yes.
Do we knock MLM companies for predatory behaviors? Yes.
So, tell me, why can't we say the same for Robinhood?
Do we knock instagram for mental health issues for youth? Yes.
Do we knock tobacco companies for making cheap/addictive products that are detrimental to health? Yes.
Do we knock MLM companies for predatory behaviors? Yes.
So, tell me, why can't we say the same for Robinhood?
> Do we knock instagram for mental health issues for youth? Yes.
Honestly, I don't think we should knock Instagram for mental health issues, that's really up to the user. Instagram's responsibility should be in providing tools to block users/content you don't want to see. If your child is suffering from Instagram, that's on you as a parent (why the fuck are they on Instagram). You don't need Instagram to be bullied, though social media in general, does increase its reach. But what do you expect when you put your life on display for the internet?
> Do we knock tobacco companies for making cheap/addictive products that are detrimental to health? Yes.
Tobacco only has one use. There is no benefit to it. Robinhood is an investment tool that has significantly lowered the barrier to entry for all investors (isn't that what everyone has wanted all along?). I would not consider what they are doing gamification, they've just unlocked investment options to the average Joe that make it very easy to shoot yourself in the foot.
> Do we knock MLM companies for predatory behaviors? Yes.
MLM companies are created for one purpose, scamming people out of money.
Robinhood serves a purpose. Instagram serves a purpose. Both services provide a ton of value for millions of people. You can't compare them to entities that only exist to cause harm.
Honestly, I don't think we should knock Instagram for mental health issues, that's really up to the user. Instagram's responsibility should be in providing tools to block users/content you don't want to see. If your child is suffering from Instagram, that's on you as a parent (why the fuck are they on Instagram). You don't need Instagram to be bullied, though social media in general, does increase its reach. But what do you expect when you put your life on display for the internet?
> Do we knock tobacco companies for making cheap/addictive products that are detrimental to health? Yes.
Tobacco only has one use. There is no benefit to it. Robinhood is an investment tool that has significantly lowered the barrier to entry for all investors (isn't that what everyone has wanted all along?). I would not consider what they are doing gamification, they've just unlocked investment options to the average Joe that make it very easy to shoot yourself in the foot.
> Do we knock MLM companies for predatory behaviors? Yes.
MLM companies are created for one purpose, scamming people out of money.
Robinhood serves a purpose. Instagram serves a purpose. Both services provide a ton of value for millions of people. You can't compare them to entities that only exist to cause harm.
> You can't compare them to entities that only exist to cause harm.
All of the entities I mentioned (including Robhinhood) have created a ton of wealth/jobs/income/etc. for a lot of people (easily 100k+ individuals).
How do you reconcile that with "only exist to cause harm"?
All of the entities I mentioned (including Robhinhood) have created a ton of wealth/jobs/income/etc. for a lot of people (easily 100k+ individuals).
How do you reconcile that with "only exist to cause harm"?
MLM has not created a ton of wealth, jobs, or income. It has done that for a select few, and robbed the majority of its victims.
Instagram has provided immense value for millions not only in the ability to connect with others, but opportunities for photographers, videographers, actors, venues, musicians, and almost every other type of creative and small business, that they otherwise wouldn't have gotten.
I know the prevailing view on HN is that social media is bad for society. I disagree. The amount of knowledge and experiences shared through social media has had a huge positive impact on the world, of course with it has come some negatives. But in general, through social media the world is now connected to a level where we can see what the real, on the ground experience is like in other places and events. I think this is key for bringing more empathy to the world, especially when it comes to relating to other people's struggles in places where most people don't really think about.
I think as a society, we are in an adjustment phase with social media, and the internet in general.
Instagram has provided immense value for millions not only in the ability to connect with others, but opportunities for photographers, videographers, actors, venues, musicians, and almost every other type of creative and small business, that they otherwise wouldn't have gotten.
I know the prevailing view on HN is that social media is bad for society. I disagree. The amount of knowledge and experiences shared through social media has had a huge positive impact on the world, of course with it has come some negatives. But in general, through social media the world is now connected to a level where we can see what the real, on the ground experience is like in other places and events. I think this is key for bringing more empathy to the world, especially when it comes to relating to other people's struggles in places where most people don't really think about.
I think as a society, we are in an adjustment phase with social media, and the internet in general.
> Honestly, I don't think we should knock Instagram for mental health issues, that's really up to the user.
Frankly, we know enough about human psychology to definitively say that this is not true, or at least not workable or useful.
We know that different technologies provide environments with different affordances. They influence us to think, feel, and behave in different ways by providing different possibilities and making some of them more appealing or lower-effort than others.
We are not simple automatons, but neither do we have unfettered free will as the Enlightenment philosophers conceived of it. Rather, we are unavoidably affected to some degree by our environment. We have well-known and easily exploitable cognitive biases and addictive triggers.
Our underlying nature was always there, but different environments and different incentives can bring out the best or the worst of it. Instagram, Twitter, and Facebook bring out the worst. And it's not an accident: they consciously seek to leverage psychological research in order to addict us, be. Unfortunately, the things that addict us are fear, anxiety, envy, anger, tribalism, and self-loathing.
Robinhood is analogous. They have created an easy, free, addictive way to ruin your life, and they profit handsomely from it. They aren't ignorant of how many people have lost everything, and they aren't innocent, because their product actively invites you to do it. It doesn't matter what the fine print says.
Frankly, we know enough about human psychology to definitively say that this is not true, or at least not workable or useful.
We know that different technologies provide environments with different affordances. They influence us to think, feel, and behave in different ways by providing different possibilities and making some of them more appealing or lower-effort than others.
We are not simple automatons, but neither do we have unfettered free will as the Enlightenment philosophers conceived of it. Rather, we are unavoidably affected to some degree by our environment. We have well-known and easily exploitable cognitive biases and addictive triggers.
Our underlying nature was always there, but different environments and different incentives can bring out the best or the worst of it. Instagram, Twitter, and Facebook bring out the worst. And it's not an accident: they consciously seek to leverage psychological research in order to addict us, be. Unfortunately, the things that addict us are fear, anxiety, envy, anger, tribalism, and self-loathing.
Robinhood is analogous. They have created an easy, free, addictive way to ruin your life, and they profit handsomely from it. They aren't ignorant of how many people have lost everything, and they aren't innocent, because their product actively invites you to do it. It doesn't matter what the fine print says.
> they consciously seek to leverage psychological research in order to addict us, be. Unfortunately, the things that addict us are fear, anxiety, envy, anger, tribalism, and self-loathing.
Would you say HN does the same?
Fear triggered through the many posts spreading FUD
Anxiety triggered by that same FUD
Envy triggered by posts about 18 year old prodigies / success by others
Anger triggered by politics, tech choices, etc
Tribalism triggered again by politics and tech choices
Self-loathing triggered by seeing what others are capable of
In my younger years, I experienced all of these feelings more from the likes of HN, than Instagram. Since I know that IG/FB/etc are fake representations of people's lives. HN on the other hand showed people's real accomplishments.
In my opinion, this is a problem of the internet, not any particular social media app. We should be teaching children, and people in general, how to have a healthy online life.
> They aren't ignorant of how many people have lost everything, and they aren't innocent, because their product actively invites you to do it.
Other than providing more investment options for the average person, what is Robinhood doing that you believe is particularly egregious?
Would you say HN does the same?
Fear triggered through the many posts spreading FUD
Anxiety triggered by that same FUD
Envy triggered by posts about 18 year old prodigies / success by others
Anger triggered by politics, tech choices, etc
Tribalism triggered again by politics and tech choices
Self-loathing triggered by seeing what others are capable of
In my younger years, I experienced all of these feelings more from the likes of HN, than Instagram. Since I know that IG/FB/etc are fake representations of people's lives. HN on the other hand showed people's real accomplishments.
In my opinion, this is a problem of the internet, not any particular social media app. We should be teaching children, and people in general, how to have a healthy online life.
> They aren't ignorant of how many people have lost everything, and they aren't innocent, because their product actively invites you to do it.
Other than providing more investment options for the average person, what is Robinhood doing that you believe is particularly egregious?
I agree that many of these problems exist on HN and other non-monetized sites. They’ve existed since Usenet. What separates sites like Instagram and Facebook from sites like HN is the conscious maximization of these emotions due to the incentives inherent in their business model. They elicit fear and anxiety on a far greater scale and to a far greater degree.
HN political discussions, bad as they can be, are tame and rational compared to Twitter or Facebook, because the design of HN does not go out of its way to reward inflammatory rhetoric. And why would it? That would only hurt HN, whose business model is simply to make tech people have a positive opinion of Y Combinator in the hope that we will apply if we one day found a startup. Facebook and Twitter’s business model, by contrast, is to maximize the number of users and the amount of time that each user spends on the site. This is accomplished via an algorithmic feed that decides which content to display to keep the user addicted. Unfortunately, the most inflammatory and emotionally damaging content is what does the best job of this, so that is what they show. HN doesn’t intentionally do this because it has no incentive to do so.
Similarly, HN-driven envy is real, but it is not causing an epidemic of anxiety among young people like Instagram envy is. Again, the vast difference in degree is due to the business model. HN doesn’t have an incentive to addict millions of people and turn their anxiety up to 11. This is exactly the awful incentive that is created by the advertising-focused business model of the major social media companies.
Instead of their sites unwittingly having some negative effects on some people, like HN does, the social media giant explicitly design their sites to have these effects, to the greatest possible degree, on as many people as possible. They are an adversary and we are the target. It is not the responsibility of the target to be a little better educated or a little more disciplined. The adversary needs to be brought to heel. Not all business models are legal—and I would contend that the advertising-based attention economy should not be legal.
As for Robinhood, let’s be honest about what it provides to its users. Robinhood’s value proposition is not “investment options”. Day trading is not investment—it has a negative expected value, and there is abundant research showing that over a long enough time horizon, every day trader loses. Day traders have done somewhat well over the last eight months in beneficial market conditions (soaring valuations are the best environment fo day traders [1]) that will not last forever. Day trading is not investment, it is gambling (an activity which also has a negative expected value). Robinhood provides no-fee gambling, with the full knowledge that this is addictive, has a negative expected value, and will ruin many people’s lives (it’s very easy to find examples on Reddit or any other day-trading forum).
Robinhood makes its money by selling order flow, and not everything that’s been said about that business model is true, but what is true is that the more order flow they have available to sell, the more money they make. In other words, the greater the number of trades that are made on Robinhood, the more money Robinhood makes. This is why trades are free. Unfortunately for users, traders’ expected return is inversely related to the number of trades they make [2]. In other words, Robinhood makes money by designing a user experience that encourages you to lose money. They make money by making it easy, fun, and addictive for as many people as possible to engage in an activity that predictably destroys the user’s wealth.
[1] https://www.tandfonline.com/doi/abs/10.2469/faj.v59.n6.2578?...
[2] https://www.tandfonline.com/doi/abs/10.1080/10293523.2012.11...
HN political discussions, bad as they can be, are tame and rational compared to Twitter or Facebook, because the design of HN does not go out of its way to reward inflammatory rhetoric. And why would it? That would only hurt HN, whose business model is simply to make tech people have a positive opinion of Y Combinator in the hope that we will apply if we one day found a startup. Facebook and Twitter’s business model, by contrast, is to maximize the number of users and the amount of time that each user spends on the site. This is accomplished via an algorithmic feed that decides which content to display to keep the user addicted. Unfortunately, the most inflammatory and emotionally damaging content is what does the best job of this, so that is what they show. HN doesn’t intentionally do this because it has no incentive to do so.
Similarly, HN-driven envy is real, but it is not causing an epidemic of anxiety among young people like Instagram envy is. Again, the vast difference in degree is due to the business model. HN doesn’t have an incentive to addict millions of people and turn their anxiety up to 11. This is exactly the awful incentive that is created by the advertising-focused business model of the major social media companies.
Instead of their sites unwittingly having some negative effects on some people, like HN does, the social media giant explicitly design their sites to have these effects, to the greatest possible degree, on as many people as possible. They are an adversary and we are the target. It is not the responsibility of the target to be a little better educated or a little more disciplined. The adversary needs to be brought to heel. Not all business models are legal—and I would contend that the advertising-based attention economy should not be legal.
As for Robinhood, let’s be honest about what it provides to its users. Robinhood’s value proposition is not “investment options”. Day trading is not investment—it has a negative expected value, and there is abundant research showing that over a long enough time horizon, every day trader loses. Day traders have done somewhat well over the last eight months in beneficial market conditions (soaring valuations are the best environment fo day traders [1]) that will not last forever. Day trading is not investment, it is gambling (an activity which also has a negative expected value). Robinhood provides no-fee gambling, with the full knowledge that this is addictive, has a negative expected value, and will ruin many people’s lives (it’s very easy to find examples on Reddit or any other day-trading forum).
Robinhood makes its money by selling order flow, and not everything that’s been said about that business model is true, but what is true is that the more order flow they have available to sell, the more money they make. In other words, the greater the number of trades that are made on Robinhood, the more money Robinhood makes. This is why trades are free. Unfortunately for users, traders’ expected return is inversely related to the number of trades they make [2]. In other words, Robinhood makes money by designing a user experience that encourages you to lose money. They make money by making it easy, fun, and addictive for as many people as possible to engage in an activity that predictably destroys the user’s wealth.
[1] https://www.tandfonline.com/doi/abs/10.2469/faj.v59.n6.2578?...
[2] https://www.tandfonline.com/doi/abs/10.1080/10293523.2012.11...
> Honestly, I don't think we should knock Instagram for mental health issues, that's really up to the user.
Instagram is a walk through a shopping mall where one is constantly trained to feel good or bad about certain actions and decisions. They have behavioral psychology and marketing specialists working and designing features against the user.
Instagram is a walk through a shopping mall where one is constantly trained to feel good or bad about certain actions and decisions. They have behavioral psychology and marketing specialists working and designing features against the user.
You can make the same argument about HN.
Also, in the past couple years, IG has rolled out functionality that does the opposite of what you suggest. e.g. They no longer prompt you with your "likes" notifications. I know they are AB testing removing "likes" from view, though not sure if that will get normalized.
Other than the likes, what exactly are they doing that is designed against the user?
Also, in the past couple years, IG has rolled out functionality that does the opposite of what you suggest. e.g. They no longer prompt you with your "likes" notifications. I know they are AB testing removing "likes" from view, though not sure if that will get normalized.
Other than the likes, what exactly are they doing that is designed against the user?
They have essentially turned it into a Sports Betting app, and I don’t see why it isn’t regulated the same way as Sports Betting apps are. They’re essentially the same thing, particularly the option trading function. “Customers placing wagers on a time bound event with an unknown, probabilistic outcome, where the facilitator of the bet takes a commission or profits in some other way.” I’ve just described both Robinhood and DraftKings.
Draft Kings doesn’t have a two way market. If people think that buying options is a rigged game then they can take the other side. You can’t do that on Draft Kings. I think that makes a huge difference.
> Can we really knock the founders of Robinhood for making stock trading so seamless and addictive and amping up the gamification to its highest level.
Yes and no. Yes, because they absolutely know what they are doing and the human cost of it. You don't get this successful with your product without also seeing primary evidence of the negative effects (lives you've ruined). But also no, because there has to be a baseline of personal responsibility on the part of someone who chooses to take on financial risk by betting on the stock markets.
This is a cat that doesn't go back in the bag, but I think the way to think about Robinhood isn't as an evolution of stock trading, but as straight up gambling, because that's what Robinhood is. It's giving you an easy way to bet money in a high risk environment where the "house" has a massive institutional and informational advantage, and it's gamified.
Without knowing more about Robinhood, I think the first question to ask is "what are the biggest footguns that are catching people who don't know better?"
Yes and no. Yes, because they absolutely know what they are doing and the human cost of it. You don't get this successful with your product without also seeing primary evidence of the negative effects (lives you've ruined). But also no, because there has to be a baseline of personal responsibility on the part of someone who chooses to take on financial risk by betting on the stock markets.
This is a cat that doesn't go back in the bag, but I think the way to think about Robinhood isn't as an evolution of stock trading, but as straight up gambling, because that's what Robinhood is. It's giving you an easy way to bet money in a high risk environment where the "house" has a massive institutional and informational advantage, and it's gamified.
Without knowing more about Robinhood, I think the first question to ask is "what are the biggest footguns that are catching people who don't know better?"
What's old is new again.
I went through my daytrading phase in the late 90s. Hell, everyone was doing it. ETrade's online portal was hot shit. You could wake up 20 minutes before the market opened, get an order in on whatever IPO was happening that day (Webvan? The Globe.com?), if you lucked out and got a block early in the open you watched it tick up +10 and were out and on your way to work with another $1,000-$2,000 in your account.
Then it all fell apart in 2000. And it will fall apart again. Like it always does, and you're left holding the bag.
I went through my daytrading phase in the late 90s. Hell, everyone was doing it. ETrade's online portal was hot shit. You could wake up 20 minutes before the market opened, get an order in on whatever IPO was happening that day (Webvan? The Globe.com?), if you lucked out and got a block early in the open you watched it tick up +10 and were out and on your way to work with another $1,000-$2,000 in your account.
Then it all fell apart in 2000. And it will fall apart again. Like it always does, and you're left holding the bag.
I think we can knock them, or at least I personally would not sleep very well if I worked there. RH is making it incredibly easy (and addictive) for naive investors to access complex financial instruments and is selling their order flow at a high premium to the most advanced trading firms on the planet. That does not unsettle you?
No, it doesn't: most retail brokerages "sell" their order flow to execution firms that specialize in actually filling orders. That's approximately how it's supposed to work.
This is the problem with Taibbi's technical writing. I'm not a domain expert in trading --- my knowledge of it comes from several years spent doing security assessments of order routers and exchange systems, and talking to lots of people in the field and reading books. But Taibbi simply doesn't know what he's talking about.
This is the problem with Taibbi's technical writing. I'm not a domain expert in trading --- my knowledge of it comes from several years spent doing security assessments of order routers and exchange systems, and talking to lots of people in the field and reading books. But Taibbi simply doesn't know what he's talking about.
Robinhood was receiving a premium for their flow compared to the other brokers last I looked.
That at least gives me pause in that it means the market feels like being on the other side of those trades is more valuable for some reason & Robinhood has a disincentive to change it if that reason is “Robinhood’s UX makes bad decisions easy.”
That at least gives me pause in that it means the market feels like being on the other side of those trades is more valuable for some reason & Robinhood has a disincentive to change it if that reason is “Robinhood’s UX makes bad decisions easy.”
That's a super interesting point! Way subtler than what Taibbi is saying.
I heard something, I can't remember from where, about the economics of promoting meme stocks --- which Robinhood is guilty of --- but that might just have involved shorting loan fees.
I heard something, I can't remember from where, about the economics of promoting meme stocks --- which Robinhood is guilty of --- but that might just have involved shorting loan fees.
Taibbi made the same point in the article:
> These firms pay more significantly more for Robinhood’s order flow than they do for the order flow of other firms: an average of 17% more, according to a Bloomberg analysis.
> These firms pay more significantly more for Robinhood’s order flow than they do for the order flow of other firms: an average of 17% more, according to a Bloomberg analysis.
Taibbi in this article mostly pushes the conspiracy theory that market makers are trading manipulatively and screwing retail investors on execution, when the opposite thing is mostly true: retail investors get mostly better prices from market makers, who pay for the order flow because it's safer to trade, and thus cheaper, and the savings are being chopped up between the market maker and the brokerage.
Taibbi has had years to figure this out, but seems utterly uninterested in how any of it works, despite any number of entertainingly readable Matt Levine posts that will explain it in a matter of paragraphs.
Taibbi has had years to figure this out, but seems utterly uninterested in how any of it works, despite any number of entertainingly readable Matt Levine posts that will explain it in a matter of paragraphs.
> retail investors get mostly better prices from market makers
When broker-dealers (BD) say this, check their foot notes. The precise statement is something like "80% of market orders are filled with a price improvement relative the the NBBO at the time of execution." That is a super narrow definition of "better". It says nothing about limit order fill rates, improvement rates, or improvement magnitudes.
More importantly, it says nothing about the path of the NBBO midpoint. "Better" needs to be measured relative to the counterfactual where orders are not sent to the BD. The BDs that fill Robinhood orders are all associated with large systematic hedge funds. The hedge funds make directional bets and hold positions overnight, activities that move the NBBO midpoint. That is a seriously suspicious conflict of interest.
If the BD is benefiting from hedge fund research about short-term price movements (probably legal if disclosed to hedge fund LPs), it will harm Robinhood clients. If the hedge fund is benefiting from BD research about retail flows (probably illegal), it will harm Robinhood clients. The data only has to cross the corporate boundary once to be harmful.
The worst thing about this clear conflict is that the BD and hedge fund are the only ones presently capable of measuring that harm. Until the SEC undertakes a systematic analysis, it is inappropriate to call this a "conspiracy theory". The SEC doesn't even have the data it needs to study this question. Weird.
When broker-dealers (BD) say this, check their foot notes. The precise statement is something like "80% of market orders are filled with a price improvement relative the the NBBO at the time of execution." That is a super narrow definition of "better". It says nothing about limit order fill rates, improvement rates, or improvement magnitudes.
More importantly, it says nothing about the path of the NBBO midpoint. "Better" needs to be measured relative to the counterfactual where orders are not sent to the BD. The BDs that fill Robinhood orders are all associated with large systematic hedge funds. The hedge funds make directional bets and hold positions overnight, activities that move the NBBO midpoint. That is a seriously suspicious conflict of interest.
If the BD is benefiting from hedge fund research about short-term price movements (probably legal if disclosed to hedge fund LPs), it will harm Robinhood clients. If the hedge fund is benefiting from BD research about retail flows (probably illegal), it will harm Robinhood clients. The data only has to cross the corporate boundary once to be harmful.
The worst thing about this clear conflict is that the BD and hedge fund are the only ones presently capable of measuring that harm. Until the SEC undertakes a systematic analysis, it is inappropriate to call this a "conspiracy theory". The SEC doesn't even have the data it needs to study this question. Weird.
Pre-Robinhood, were we (as a society) really only a polished-product away from mass adoption of stock trading in general?
Like, is it really true that prior to Robinhood, most people outside of the wealthiest ones avoided stock trading only because it was so hard to use any of Schwab/Fidelity/Scottrade/Etrade/etc.?
Like, is it really true that prior to Robinhood, most people outside of the wealthiest ones avoided stock trading only because it was so hard to use any of Schwab/Fidelity/Scottrade/Etrade/etc.?
Anecdotally, yes. Until fintech apps started actually functioning in the country where I live, the activation energy to set everything up to gain exposure to equity markets was too high for myself and everyone my age that I knew. I'm very happy with the app I use now that lets me hold equity in markets globally(!) for some minor transaction fees, much happier than I was back when I got my first paychecks and my only realistic options were to watch it sit in a bank account or spend it.
> I feel we as a civilization have uncorked a financial poison pill in the innovations of Robinhood. We will just have to ingest and process it to move forward, there is no way to go back. There will be a price to way in lost savings and lives.
Just look at the toxicity of /r/wallstreetbets if you're looking for the cracks in the wall.
Also: https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-y...
Just look at the toxicity of /r/wallstreetbets if you're looking for the cracks in the wall.
Also: https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-y...
You've got this all ass-backwards, like most posters in this thread.
WSB didn't cause these problems, it exposed them. The financial industry is rife with corruption, but because its been legalized, we don't call it that. Same shit as "lobbying". Its bribery, period. Its lipstick on a pig.
Another person wanted to call WSB toxic because people don't know what causes a stock to go up or down in price... well goddamn, neither do they. I remember when analysts were squawking about AMD a little over five years ago, downgrading it to a sell. Only a feeeeeewwww analysts had it marked as hold and maybe 1 or 2 as a buy.
However, if you knew jack shit about the semiconductor industry, and you saw they hired Jim Keller and Lisa Su, you would have dumped a ton in there. I know I did... I bought 100,000 shares when I heard Jim went back, for the bargain price of $2. I was elated when they hit $16. I was floored when they hit $50. Now that they're thoroughly dominating Intel, I intend to hold until 2022/23, when Intel should start to be competitive again.
Most people have no fucking clue why a stock goes up or down... and the years it takes to learn an industry well enough to know not just the companies in play, but the technologies in play, and the people in play...? Most analysts don't have the wherewithal.
I'll buy a stock recommended from a 30 year veteran of an industry that knows the players over any Ivy League big shop analyst any day of the week.
WSB didn't cause these problems, it exposed them. The financial industry is rife with corruption, but because its been legalized, we don't call it that. Same shit as "lobbying". Its bribery, period. Its lipstick on a pig.
Another person wanted to call WSB toxic because people don't know what causes a stock to go up or down in price... well goddamn, neither do they. I remember when analysts were squawking about AMD a little over five years ago, downgrading it to a sell. Only a feeeeeewwww analysts had it marked as hold and maybe 1 or 2 as a buy.
However, if you knew jack shit about the semiconductor industry, and you saw they hired Jim Keller and Lisa Su, you would have dumped a ton in there. I know I did... I bought 100,000 shares when I heard Jim went back, for the bargain price of $2. I was elated when they hit $16. I was floored when they hit $50. Now that they're thoroughly dominating Intel, I intend to hold until 2022/23, when Intel should start to be competitive again.
Most people have no fucking clue why a stock goes up or down... and the years it takes to learn an industry well enough to know not just the companies in play, but the technologies in play, and the people in play...? Most analysts don't have the wherewithal.
I'll buy a stock recommended from a 30 year veteran of an industry that knows the players over any Ivy League big shop analyst any day of the week.
WSB didn't cause these problems, it exposed them.
This kill-the-messenger foolishness is everywhere! People seem to think that if the words they don't like are removed from their favorite social media, those words will just disappear. In reality we should want those words out in the open so we can pay attention to them, respond to them, and if necessary react in a real (i.e., not attempted censorship) way.
This kill-the-messenger foolishness is everywhere! People seem to think that if the words they don't like are removed from their favorite social media, those words will just disappear. In reality we should want those words out in the open so we can pay attention to them, respond to them, and if necessary react in a real (i.e., not attempted censorship) way.
How is r/wallstreetbets toxic? As someone who doesn’t day-trade, I still subscribe for the memes and self-aware jokes. It’s one of the few remaining large subreddits with tons of creative energy and no drama or politics.
And as someone who doesn’t day-trade, the “loss porn” regularly posted to r/wallstreetbets has firmly convinced me to stick with index funds.
And as someone who doesn’t day-trade, the “loss porn” regularly posted to r/wallstreetbets has firmly convinced me to stick with index funds.
>the “loss porn” regularly posted to r/wallstreetbets has firmly convinced me to stick with index funds
Same here. I know that I'm neither smart enough nor willing to dedicate time to micromanaging my portfolio. Index funds/ETFs are the way to go, and I only invest in individual stocks (no options/puts for me) if they catch my eye and the research of others has a positive outlook.
Same here. I know that I'm neither smart enough nor willing to dedicate time to micromanaging my portfolio. Index funds/ETFs are the way to go, and I only invest in individual stocks (no options/puts for me) if they catch my eye and the research of others has a positive outlook.
Biggest appeal for me is free options trading and (previously) no commissions trades. Now the latter is built into every brokerage service that exists - what's the appeal if you're just buying stocks?
The Robinhood website is barely better than the Vanguard website - it might be even less reliable.
The Robinhood website is barely better than the Vanguard website - it might be even less reliable.
Naturally, Taibbi manages to feature PFOF in this article, a benign practice common to retail brokerages (who do not in fact specialize in order execution, but rather, mostly, in being able to pick up the phone or run a website). Complete with a citation to Michael Lewis' ludicrous "Flash Boys". Meaning even when he picks a legitimate target --- Robinhood, which is a gambling application disguised as a personal finance tool, is richly deserving --- he still manages to flub it.
Well sure PFOF alone is not that much of a competitive gain, though it will put you above most investors to have it that is why hedge funds like Citadel, Virtu, and Wolverine buy this info. Those guys are doing things with that data for sure because Robinhood has scale/volume in lower skilled investors. It isn't cheap, funds has to have a massive cash to even afford the data.
Robinhood has PFOF AND low skill investors in volume, so the amount of prediction of moves is a combination of data and their users. They also recommend stocks and market these to users that are less skilled, this is in unison with online forums like wallstreetbets and more. Robinhood can move the market on stocks they want and compare volume/direction they are pushing and predict the volume/direction from others with that. Robinhood's name seems small fish, but they are a whale that other whales feed off of and those whales bring schools of small fish in uniform to them to play off of and eat.
Robinhood buyers/partners make moves based on all of those data points and the result is almost like stealing candy from kids. This is especially true on stocks they themselves push/recommend or are pushing funding to, partner companies or companies also funded by who funded them. It seems like "democratic" markets but is actually so choreographed it is a more authoritarian/fixed market due to the sheer volume and type of investor.
Since Robinhood only sells data, and so many competitors are popping up, it has to be massively lucrative in more ways than just the first step, but supporting deeper investments is probably a key aspect of the plan.
Robinhood has PFOF AND low skill investors in volume, so the amount of prediction of moves is a combination of data and their users. They also recommend stocks and market these to users that are less skilled, this is in unison with online forums like wallstreetbets and more. Robinhood can move the market on stocks they want and compare volume/direction they are pushing and predict the volume/direction from others with that. Robinhood's name seems small fish, but they are a whale that other whales feed off of and those whales bring schools of small fish in uniform to them to play off of and eat.
Robinhood buyers/partners make moves based on all of those data points and the result is almost like stealing candy from kids. This is especially true on stocks they themselves push/recommend or are pushing funding to, partner companies or companies also funded by who funded them. It seems like "democratic" markets but is actually so choreographed it is a more authoritarian/fixed market due to the sheer volume and type of investor.
Since Robinhood only sells data, and so many competitors are popping up, it has to be massively lucrative in more ways than just the first step, but supporting deeper investments is probably a key aspect of the plan.
I don't know how to respond to this comment, since it's orthogonal to my understanding of PFOF (and for that matter the understanding of people like Matt Levine).
Market makers don't buy retail order flow to get an edge over retail investors. They seek it out because it's safer to trade with --- retail investors, unlike hedge funds, tend not to follow up their 100-share orders with huge numbers of subsequent hundred-share orders. Safer means cheaper. Market makers chop up the cost savings with brokerages, which is where the payment comes from.
What rings true to me --- for whatever that's worth to you --- is that Robinhood influences its user behavior in ways that are bad for its users and generally good for the firms who execute its trades. Of course, that's true of anything that gets users trading more, which, of course, is something users should not be doing.
Robinhood is bad! It's just not bad due the conspiracy theory Taibbi invokes. What's frustrating is that he's been saying this for awhile, and he's had plenty of time to investigate and build some understanding of how the market is structured. Matt Levine can explain it, entertainingly, to a lay person in just a paragraph or two. Taibbi simply doesn't care, and counts on you not caring either.
Market makers don't buy retail order flow to get an edge over retail investors. They seek it out because it's safer to trade with --- retail investors, unlike hedge funds, tend not to follow up their 100-share orders with huge numbers of subsequent hundred-share orders. Safer means cheaper. Market makers chop up the cost savings with brokerages, which is where the payment comes from.
What rings true to me --- for whatever that's worth to you --- is that Robinhood influences its user behavior in ways that are bad for its users and generally good for the firms who execute its trades. Of course, that's true of anything that gets users trading more, which, of course, is something users should not be doing.
Robinhood is bad! It's just not bad due the conspiracy theory Taibbi invokes. What's frustrating is that he's been saying this for awhile, and he's had plenty of time to investigate and build some understanding of how the market is structured. Matt Levine can explain it, entertainingly, to a lay person in just a paragraph or two. Taibbi simply doesn't care, and counts on you not caring either.
Yeah that was a bit orthogonal but was going into the point that Robinhood is more than just payment order flow selling.
Robinhood payment order flow selling (PFOF) is just the "limited hangout" they want people to focus on and how they make most of their money. I wouldn't doubt they even pay people and have false opposition to focus on the PFOF aspect over other things they are doing.
Robinhood use PFOF more effectively than other retail brokerages with the larger system they are in. The type of investor can more easily be manipulated as well as the volume is key.
However, PFOF is merely a node in the Robinhood system of influence. Ultimately Robinhood itself is a node in a orchestrated investment system that is greater than Robinhood. Anyone in investment or even knows a bit about geopolitics knows that it is greater than simply an app that sells PFOF. Robinhood would love people to just focus on PFOF because "everyone is doing that", but they aren't going further but Robinhood is.
Robinhood payment order flow selling (PFOF) is just the "limited hangout" they want people to focus on and how they make most of their money. I wouldn't doubt they even pay people and have false opposition to focus on the PFOF aspect over other things they are doing.
Robinhood use PFOF more effectively than other retail brokerages with the larger system they are in. The type of investor can more easily be manipulated as well as the volume is key.
However, PFOF is merely a node in the Robinhood system of influence. Ultimately Robinhood itself is a node in a orchestrated investment system that is greater than Robinhood. Anyone in investment or even knows a bit about geopolitics knows that it is greater than simply an app that sells PFOF. Robinhood would love people to just focus on PFOF because "everyone is doing that", but they aren't going further but Robinhood is.
They're not buying the info. The info is worthless. What they're buying is the deal flow.
What’s ludicrous about “Flash Boys”?
From one of your old comments [0] referencing "Flash Boys": when did Lewis talk about Marillion? It's one of my favorite band, I was surprised to see it mentioned there :)
[0]: https://news.ycombinator.com/item?id=9046736
[0]: https://news.ycombinator.com/item?id=9046736
There's a chapter in _Next_ about it. :)
Ah, I didn't know!
Would that be his best book, in your view?
Would that be his best book, in your view?
Oh, lord, no. His best book, by far, is Moneyball, and then The Blind Side, The Big Short, and then Liar's Poker --- though I trust The Big Short less after Flash Boys.
Robinhood provides commission free trades on fractional shares for practically all worldwide publicly traded equities in literally the palm of my hand.
To paraphrase Uncle Ben, "with great convenience comes great responsibility."
If you shoot yourself in the foot you don't blame the gun store.
To paraphrase Uncle Ben, "with great convenience comes great responsibility."
If you shoot yourself in the foot you don't blame the gun store.
Is Robinhood the market maker for fractional share sales, or do they outsource that to someone? Someone has to hold a real share to make it work.
There's a decent amount of regulation around making sure retail investors don't get taken advantage too much when making normal trades, but I could see there being a larger bid/ask spread with fractional shares and market makers taking advantage of that.
There's a decent amount of regulation around making sure retail investors don't get taken advantage too much when making normal trades, but I could see there being a larger bid/ask spread with fractional shares and market makers taking advantage of that.
I tend to agree that Robinhood treats investing like a game and connects people with investments they aren't really suited for, but "pandemic villain" makes it sound like they took advantage of the pandemic. They just had the right entertainment product at the right time; "villain" implies more intent than was actually there.
>If you have an urgent question, like for instance thinking you owe three-quarters of a million dollars, too bad: Robinhood’s chief feedback option is email, with response times of up to a week.
This is true for most offerings in which you, the user, is the product. You spend time or money and if something goes wrong good luck trying to get it resolved, much less speak with a human that can actually resolve it.
You can lose your gmail account without warning or reason and essentially the keys to your entire online life. Or in the case of this poor soul, experience an unintended side effect of a poorly designed UI in a financial trading app that makes things seem much worse than they actually are.
And in these dire situations, corporations make it as difficult as possible to reach a human to resolve it.
We should all be ashamed that this is what scalability usually means.
This is true for most offerings in which you, the user, is the product. You spend time or money and if something goes wrong good luck trying to get it resolved, much less speak with a human that can actually resolve it.
You can lose your gmail account without warning or reason and essentially the keys to your entire online life. Or in the case of this poor soul, experience an unintended side effect of a poorly designed UI in a financial trading app that makes things seem much worse than they actually are.
And in these dire situations, corporations make it as difficult as possible to reach a human to resolve it.
We should all be ashamed that this is what scalability usually means.
I see no problem with unsophisticated people trading stocks on their phones, because one consequence of markets being efficient (or close to efficient) is that it’s really hard to underperform the market consistently. Just as hard as outperforming the market consistently, in fact. They’re wasting their time, but time you enjoy wasting is not wasted, etc.
I don’t really feel the same way about options though. I don’t have a great explanation as to why. But options and the associated leverage are a totally distinct issue from picking individual stocks - options trading by retail investors is just gambling even if the underlying is SPY and not a psilocybin penny stock or whatever.
I don’t really feel the same way about options though. I don’t have a great explanation as to why. But options and the associated leverage are a totally distinct issue from picking individual stocks - options trading by retail investors is just gambling even if the underlying is SPY and not a psilocybin penny stock or whatever.
It's actually quite easy to underperform the market if you make a lot of trades and cross the spread when you do it. Which is exactly the behavior that all retail brokerages are incentivized to encourage.
It's easy to underperform if you buy options that can go to zero on an incredibly short time horizon.
Those of us who care about silly, antiquated things like P/E ratios, or even having earnings at all, have definitely consistently underperformed the market.
Value investing is a widowmaker in the ZIRP era.
Value investing is a widowmaker in the ZIRP era.
Value investing is quite interesting, but when trying to come up with "value" picks, I wind up finding out about companies I'd never heard of in my life before. I do a tiny bit of this.
Mostly, I invest in companies whose products I'd love to buy. I buy Apple gear, I bought a Tesla, I buy stuff on Amazon all the time and I love CloudFlare. Simply following the products I'd like to buy in the future and ignoring P/E ratios and ignoring the screams of much more experienced investors (who all hated TSLA because "they lose so much money!") has worked out gang-busters.
I find it hard to square the "value investing" concept with the idea of following my own product instincts. What publicly traded company has products people DESPERATELY want, but fails to make profits eventually? Are there... any? That's a death only start-ups who don't know enough VCs ever face these days. There is close to unlimited liquid cash in the world - but there are very very few interesting products.
Mostly, I invest in companies whose products I'd love to buy. I buy Apple gear, I bought a Tesla, I buy stuff on Amazon all the time and I love CloudFlare. Simply following the products I'd like to buy in the future and ignoring P/E ratios and ignoring the screams of much more experienced investors (who all hated TSLA because "they lose so much money!") has worked out gang-busters.
I find it hard to square the "value investing" concept with the idea of following my own product instincts. What publicly traded company has products people DESPERATELY want, but fails to make profits eventually? Are there... any? That's a death only start-ups who don't know enough VCs ever face these days. There is close to unlimited liquid cash in the world - but there are very very few interesting products.
Numbers matter a lot, but you are right that P/E ratio is way simplistic. I think if you want to quantify your strategy, you should look at which market the company is in, and how much of it their amazing products can capture, and how soon.
How big market share in % will Tesla's headstart in EV and autopilot give them in 10 years? That's the kind of question you should ask.
How big market share in % will Tesla's headstart in EV and autopilot give them in 10 years? That's the kind of question you should ask.
Isn't outperformance by assets with greater duration - e.g., stock in companies whose expected earnings are way off in the future - what fundamentals would suggest should happen in a decreasing interest rate environment?
Nope, not true.
A very small fraction of stocks account for a large majority of the return of an index. If you miss these few in your portfolio, you will under-perform. It's not 50:50 whether or not you over-perform or under, its more like 1:50(over a significant period of time).
A very small fraction of stocks account for a large majority of the return of an index. If you miss these few in your portfolio, you will under-perform. It's not 50:50 whether or not you over-perform or under, its more like 1:50(over a significant period of time).
Yeah the distribution of returns isn't symmetrical, but the expected return is still equal to the market return. You could make the argument that that means that expected utility is lower because of decreasing marginal utility, but I'm not confident enough in my understanding of others' utility functions to make that claim.
Disappointed that this didn't include the extended downtimes during the February/March crash and rebound.
Remember the time kids, when you had to pay Etrade or Vanguard or one of these leeches a fee of $20 to execute each trade, even when you wanted to sell your position that was losing money? That meant locking out an entire population of people from financial prosperity because they couldn't afford $40 worth of commissions each time they bought and sold a stock. I'm sorry but Robinhood has been fulfilling it's name. It's not perfect, but without it, you'd all still be getting squeezed by these brokerages.
Robinhood is a gambling platform. The SEC should regulate it as such.
So same as ETrade, Schwab, TDAmeritrade, Vanguard, Fidelity, etc.?
RobinHood is not comparable to these other guys. There's a difference between investing and punting/speculating. Two of those differences is through your user UX and the education you provide the average retail investor. RobinHood's mobile first view - sure its great - but its more geared towards the gamification of trading versus actually building wealth.
So how exactly do you write laws differentiating them?
I don't see anything that makes me think Robinhood is villainous. Sure they have poor customer support and UX designed for engagement, just like every other major consumer tech firm.
Stocks have positive expected returns (and if they don't in aggregate the gov't/fed will work overtime to make sure they do) and gambling has negative expected returns. Perhaps society should be encouraging the proles to put their money in the stock market instead of in casinos / lottery tickets / daily fantasy sports.
Also looking at the stock market the last year, a product that makes it easier for retail investors to buy stock after the pandemic hit is a big win for those investors is it not? The order flow issues don't really matter to most retail investors and they shouldn't.
Also looking at the stock market the last year, a product that makes it easier for retail investors to buy stock after the pandemic hit is a big win for those investors is it not? The order flow issues don't really matter to most retail investors and they shouldn't.
[deleted]
Sort of tangential: is there a reason why Robinhood et al don’t have a “build your own index fund” tool? I’d really like to pick my own basket of stocks, then invest in them all with a “single” buy according to my weights.
M1 Finance does exactly this, check them out.
Likely due to the regulatory difficulty in then brokering fractional share purchases.
If your "index fund" includes a few stocks that have large share prices (e.g. TSLA, AMZN), then to buy a single "share" of your fund would require quite a bit of capital. I don't believe the retail level investors that Robinhood targets are quite at that level.
If your "index fund" includes a few stocks that have large share prices (e.g. TSLA, AMZN), then to buy a single "share" of your fund would require quite a bit of capital. I don't believe the retail level investors that Robinhood targets are quite at that level.
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> In that meeting, he [Ashton] reportedly gushed about the company’s potential by comparing it to gambling websites. Kutcher put out a statement that he was “not insinuating that Robinhood is a gambling platform,” but rather referring to the company’s “current growth metrics.”
Yikes.
Yikes.
Kutcher seems to inject himself into investing culture in the sleaziest most classless ways... reminds me of when Kutcher was chumming around with WeWork’s egomaniac founder. Guy is a vaporware PowerPoint deck in sneakers.
> These harmless-looking eggheads...
Egghead is used instead of nerd or dork here:
https://en.wikipedia.org/wiki/Egghead
Read the article, couldn't understand why they are villains. OK, so there's a case where a guy misunderstood his financial statement and killed himself. This is profoundly sad but surely doesn't make RH villains - they didn't intend this outcome and they didn't even make the data particularly hard to understand, it's just a sad coincidence which sometimes happens when thousands of people interact in millions of ways. Fish long enough, and you'll find something weird and something bad happening.
The other claim is that RH runs their order flow through brokerages which has the right of first trade on the trades RH users do. I don't see how that hurts RH users - by the time they made the trade, they already agreed on a price, and unless something nefarious happens like somebody foolishly sending no-limit market price orders and somebody else exploiting those to close deals with wildly out-of-market prices (which I saw no evidence of, that's just the only way I can think of this can be hurtful for the RH clients), I still fail to see the villainy.
So TLDR of it all is that they are villains because a) one guy killed himself after misreading a financial statement, b) they work with HFT companies and c) they have notifications (oh noes, no non-villainous trading software would ever do that!). That's it. Weak sauce, I say.
P.S. And what this has to do with the pandemic? Just to make it more nefarious by somehow implying they are profiteering from the pandemic, without providing any proof except temporary coincidence?
The other claim is that RH runs their order flow through brokerages which has the right of first trade on the trades RH users do. I don't see how that hurts RH users - by the time they made the trade, they already agreed on a price, and unless something nefarious happens like somebody foolishly sending no-limit market price orders and somebody else exploiting those to close deals with wildly out-of-market prices (which I saw no evidence of, that's just the only way I can think of this can be hurtful for the RH clients), I still fail to see the villainy.
So TLDR of it all is that they are villains because a) one guy killed himself after misreading a financial statement, b) they work with HFT companies and c) they have notifications (oh noes, no non-villainous trading software would ever do that!). That's it. Weak sauce, I say.
P.S. And what this has to do with the pandemic? Just to make it more nefarious by somehow implying they are profiteering from the pandemic, without providing any proof except temporary coincidence?
Whenever I go buy something at a typical grocery/deli in my city there is always one consistent customer - scratch off and lotto players. Any Deli owner will tell you this is part of their holy trinity of guaranteed business, beer, lotto, cigarettes (now vapes). It literally makes up half their revenue.
Robinhood is like a modern day scratch off, the underlying market exists in your local deli already. It’s not long term value investing, it’s a dream of winning big on any given day.
Robinhood is like a modern day scratch off, the underlying market exists in your local deli already. It’s not long term value investing, it’s a dream of winning big on any given day.
This is quite a brilliant way to put it.
Except the target market is not 'working class' it's the equally unaware 'young urbanites with decent jobs who should know better'.
Except the target market is not 'working class' it's the equally unaware 'young urbanites with decent jobs who should know better'.
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The worst part is the branding.
Their narrative/coolaid is that they were part of the 'Occupy Wall Street' movement and wanted to do something about it!
Couching their very otherwise standard trading scheme into woke credentials, bringing an entire generation of woke youth literally right into the system they ostensibly lamented.
'Overthrow the Imperium by ... joining the Imperium and losing all your money to them!'
Like WeWork, We Charity etc., it just reeks of hypocrisy.
I'm of the belief that most traders are in fact caught up in the more superfluous aspects of trading, the 'belief' that they have some ability/skill/insight when really the are mostly in way over the heads, fish being handed over to sharks for easy money. That's obviously not entirely the case, but to a great extent. Who in heaven's name is trading complex options instruments on their smartphone ... my gosh.
The $0 fee merely encourages active trading, which is a hallmark of most bad trading strategies.
It mixes the worst aspects of gambling, with the worst aspects of hyper capitalism (the assumption that trading/investing is inherently positive) and the worst aspect of woke branding (playing on progressive credentials without any material action to that effect).
And CNN has done how many full PR pieces on these guys?
If their name was "Make Quick Cash Now with BIG LOANS for Hyper Trading, Insert Credit Card Here" - then I think it would all be much more transparent and fair.
Their narrative/coolaid is that they were part of the 'Occupy Wall Street' movement and wanted to do something about it!
Couching their very otherwise standard trading scheme into woke credentials, bringing an entire generation of woke youth literally right into the system they ostensibly lamented.
'Overthrow the Imperium by ... joining the Imperium and losing all your money to them!'
Like WeWork, We Charity etc., it just reeks of hypocrisy.
I'm of the belief that most traders are in fact caught up in the more superfluous aspects of trading, the 'belief' that they have some ability/skill/insight when really the are mostly in way over the heads, fish being handed over to sharks for easy money. That's obviously not entirely the case, but to a great extent. Who in heaven's name is trading complex options instruments on their smartphone ... my gosh.
The $0 fee merely encourages active trading, which is a hallmark of most bad trading strategies.
It mixes the worst aspects of gambling, with the worst aspects of hyper capitalism (the assumption that trading/investing is inherently positive) and the worst aspect of woke branding (playing on progressive credentials without any material action to that effect).
And CNN has done how many full PR pieces on these guys?
If their name was "Make Quick Cash Now with BIG LOANS for Hyper Trading, Insert Credit Card Here" - then I think it would all be much more transparent and fair.
I think many people saying that this feels like smear are mainly saying this because they themselves have negative personal feelings against Matt (one of the few good journalists left imho.)
It's somewhat ironic to praise Robinhood's UI as "good experience" when the article itself is criticizing this same experience for how it's designed to be addictive, essentially turning investing into a game. Matt is not the first to make this point [1] [2]. To be clear, I don't mind praising certain features of Robinhood or even the idea of making it accessible to start investing small. I don't blame Robinhood even for this because they're not forcing anyone to trade. But dismissing this entire article and very valid criticism against Robinhood just because of your feelings on Taibbi is a bit much.
The last couple of paragraphs seem like an appropriate tldr:
> If and when IPO money comes, Robinhood will be on its way to becoming a finance version of Facebook: a free platform that keeps a sea of customers engaged with a hyper-stimulating user experience, while making money selling intelligence about those customers’ behaviors to expert wealth extractors on the other end.
> It’s the perfect mousetrap, among other things because of its name. “That’s the other thing,” says Brewster. “They call it Robin Hood.” Instead of stealing from the rich and giving to the poor, the American version takes in the young and sells them to computer-powered hedge funds; this Robin Hood is the house that always wins. If there’s a more brilliant metaphor for capitalism in the Covid age, it’s hard to imagine.
[1] https://www.cnbc.com/2020/08/21/robinhood-is-having-a-moment...
[2] https://www.bloomberg.com/news/features/2020-10-22/how-robin...
It's somewhat ironic to praise Robinhood's UI as "good experience" when the article itself is criticizing this same experience for how it's designed to be addictive, essentially turning investing into a game. Matt is not the first to make this point [1] [2]. To be clear, I don't mind praising certain features of Robinhood or even the idea of making it accessible to start investing small. I don't blame Robinhood even for this because they're not forcing anyone to trade. But dismissing this entire article and very valid criticism against Robinhood just because of your feelings on Taibbi is a bit much.
The last couple of paragraphs seem like an appropriate tldr:
> If and when IPO money comes, Robinhood will be on its way to becoming a finance version of Facebook: a free platform that keeps a sea of customers engaged with a hyper-stimulating user experience, while making money selling intelligence about those customers’ behaviors to expert wealth extractors on the other end.
> It’s the perfect mousetrap, among other things because of its name. “That’s the other thing,” says Brewster. “They call it Robin Hood.” Instead of stealing from the rich and giving to the poor, the American version takes in the young and sells them to computer-powered hedge funds; this Robin Hood is the house that always wins. If there’s a more brilliant metaphor for capitalism in the Covid age, it’s hard to imagine.
[1] https://www.cnbc.com/2020/08/21/robinhood-is-having-a-moment...
[2] https://www.bloomberg.com/news/features/2020-10-22/how-robin...
Yes, let's take away one of the few remaining tools to grow your wealth available to everyone under the guise of protecting the public.
They cut commissions to 0 industry wide and taught a generation about stock markets and options, which was previously knowledge reserved mostly for wall street.
Imagine if we had access to VC level deals too, like $50k in an early round of doordash that is now worth $80M? Why should we want to go in the opposite direction?
The line between gambling and investing is very very fuzzy. We’ve even seen recent stories of people gaming literal lotteries to tilt the scales towards a win. You cannot ban a tool that one person uses for gambling without also banning others who use that same tool for investing. I’m sorry but I’d rather have those tools than have them taken away because someone else is irresponsible with them.
They cut commissions to 0 industry wide and taught a generation about stock markets and options, which was previously knowledge reserved mostly for wall street.
Imagine if we had access to VC level deals too, like $50k in an early round of doordash that is now worth $80M? Why should we want to go in the opposite direction?
The line between gambling and investing is very very fuzzy. We’ve even seen recent stories of people gaming literal lotteries to tilt the scales towards a win. You cannot ban a tool that one person uses for gambling without also banning others who use that same tool for investing. I’m sorry but I’d rather have those tools than have them taken away because someone else is irresponsible with them.
I feel like Taibbi had an axe to grind against Robinhood or else he would have tried to separate the "bad" (puts, options, a sense of gambling) vs the good (low barrier to entry, easy to buy what you want, etc).