Robinhood - Taking from the poor and giving to the rich
Robinhood - Taking from the poor and giving to the rich
Recent financial news has been swirling around the Game Stop- AMC Movie - Reddit controversy. There is one company that ties these 3 firms together and that company is Robinhood. Robinhood is an APP that you can download to your phone or tablet and the APP functions as an online brokerage firm. After downloading the APP and entering in your personal financial information, you will gain access to Robinhood’s trading platform and you can pretty much do anything from buy stocks, to sell options contracts.
When I started investing, 23 years ago, it was at the height of the dot com mania. I saw individual stocks double in one day of trading! I also saw a lot of shenanigans that I found so disturbing that I adopted the policy that I would never work with an individual or company that had done something that was unethical when it came to financial matters.
I raise these issues in regards to the company Robinhood and the various stories surrounding it that has put a huge spotlight on the company and its business model. Robinhood allowed its members, many of them young and inexperienced traders to purchase option contracts and drive up the value of stocks from Game Stop, AMC, BlackBerry, and a few others. These “Short sellers” put the squeeze on Hedge Funds. Hedge Funds are investment instruments that are used by wealthy individuals and are designed to make money whichever direction the market is moving. The Robinhood investors met on the online platform Reddit and pooled their resources and bought those stocks, which forced at least one Hedge Fund to nearly go out of business.
Now Robinhood has made claims that it had little to do with all the trading, and it even stopped some of its Robinhood clients from trading in Game Stop stock. But here is the problem that we have with Robinhood. When an individual chooses Robinhood’s platform, Robinhood retains the right to sell your trading history to, yep you guessed it- large Hedge Funds! Those Hedge Funds can see where the little investor is buying stocks, and then the Hedge Fund can short those stocks, or they can go long! This is important information and, in our opinion, Robinhood should not sell this information to anyone, let alone Hedge Funds.
These accusations are serious enough, but the Robinhood story took a deadly turn when a young investor from the town of Naperville, IL took his own life when he mis-read his margin account and thought he was in arrears for nearly $800,000 when actually he owed only a tiny fraction. This young man was 20 years old, and in our opinion, he had no business having a margin account and he had no business buying option contracts. His family is litigating against Robinhood in court, and we hope justice prevails.
Robinhood, by its very name stirs images of taking from the rich and giving to the poor, but we believe that if you were to study their business model, you might just reach an opposite conclusion. Companies that take advantage of their client’s lack of sophistication and naivety is not a company that we would want to conduct business with, especially when it comes to financial matters. Buying a stock at 9am and selling it at 10am on the same day is not investing, its day trading, and Boodle does not condone this type of market participation. Taking a position in a stock, or mutual fund and holding it for 5 years and longer, is how we do business. It has served our clients well for more than a decade, and it will be how we always do business.