Public Service Announcement: Robinhood Is Not Your Friend

Robinhood app – I’m not a fan.

Robinhood is a financial services app providing an easy-to-use onramp to retail investors. A seemingly-friendly accessible Main Street approach to Wall Street. It should be a morally neutral platform. Unfortunately, it appears to encourage all the worst investment behaviors that Main Street retail investors should not do. Behaviors like using leverage, options, trading individual stocks, short-termism. Robinhood is a menace because it’s going to cost people money, people who probably can’t afford to lose it. And lose they will.

Despite the name, the Robinhood app does not favor the ‘everyman’ over the Wall Street sharps. On the contrary, to the extent it encourages leverage, options trading, individual stock trading and short-term trading, it will, over time, inevitably tend to transfer money away from the everyman toward Wall Street. All under the guise of “democratizing investing.” There are some great “democratizing investing” apps. Robinhood just is not one of them.

Reddit is cool. A couple of guys (I think they were mostly guys but on Reddit users can remain anonymous so permit me to just simplify genders here) found value in an unloved stock, GameStop (GME). Many months ago. It was so unloved that many hedge funds had large short positions. In January, a mob of Redditors, and others, engaged in a buying frenzy, a storm-the-capitol type pile-on in that stock. It was as unwise, conspiratorially-fueled, and briefly successful as any shocking market move in recent memory.

To be clear, there is nothing new about a part of this. Attacking short-sellers and making them suffer is a time-honored blood sport among professional hedge fund investors. 

What was new was Robinhood investors and Reddit Bros figured out a way to put on their viking caps, fur-trimmed coats and body armor to overwhelm the financial barricades to participate en masse, with the sheer weight of their bodies, (metaphorically, financially, speaking) causing mass hysteria in the stock.

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