The Robin Hood of the 21st Century

Amar Pandit , CFA , CFP

What comes to your mind when you hear the word “Robinhood”?

Robin Hood was the legendary English outlaw who stole from the rich and gave to the poor.

While I would love to write about the Real Robin Hood someday, this nano is about the US Trading App “Robinhood”.

Using a fancy term such as Democratizing Finance (or is it Democratizing Speculation or Gambling) and loads of venture capital, Robinhood has brilliantly managed to not only gamify stock broking through a brilliant user experience but has also managed to get millions of young people involved in the stock markets.

Ben Carlson in his blog “A Wealth of Common Sense” dissects the Robinhood- S1: prospectus filed with the regulator before its IPO, with some interesting data points and thoughts.

a. 47% of Robinhood Users access the App Daily and those daily users open the app approximately 7 times a day.

Successful investing is similar to planting seeds, and watching the plants grow. Watching the app every day is like removing the plants to see whether they have grown properly. This does nothing to make people richer but raises the anxiety level of most people and gets them to trade frequently and regularly.

Just like smoking is injurious to your health, so is trading to your financial health. Ok I know, I am sounding like that preachy uncle of yours, but I really couldn’t help myself from writing this cliched line.

b. 47% of Robinhood’s transaction-based revenues in 2020 came from Options Trading.

This is a huge win for Robinhood. Sadly, but true that most of their customers will never be able to claim this.

c. One of the risk factors highlighted by the company is fascinating (I am using a nice “f” word here).

The S1 has this gem – “A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial conditions and results of operations could be adversely affected.

Well, we know Robinhood isn’t forcing anyone by holding their necks to trade options or Dogecoin or Crypto. All they needed to do is Democratize Finance and turn investing into a Casino like Experience. Then simply trust millions of investors to do what they would do best in a casino.

I wonder what the Real Robin Hood would have to say of this Robinhood.

Wish you and your family a very HappyRich Dussehra.