The #retailbros era of Robinhood day trading is upon us, led by dangerous man-children like Barstool founder Dave Portnoy.
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Q2 2020 hedge fund letters, conferences and more
You Shouldn't Use Robinhood And Twitter As Trading Platforms
I apologize. We should start with a glossary of terms for non-Millennials who don’t spend their entire lockdown on Twitter and Robinhood.
#retailbros — New day traders investing with daddy’s money and Uncle Sam’s stimulus
Robinhood — The preferred trading platform for #retailbros
Barstool — A website no one should ever go to
Dave Portnoy — The King of #retailbros who (allegedly) made a few lucky trades and is now leading an entire generation of frat boys into bankruptcy through Twitter day trading
The existence of Portnoy and the #retailbros is the strongest argument Republicans have for not extending direct stimulus payments to people past July. Day trading platforms in the U.S. and U.K. have seen an enormous jump in their userbase since March, the start of stimulus payments. In the U.K., the big winner was IG.
IG added 34% more users and a 3X increase in trading volume year over year. Annual pretax profits jumped 52%.
Robinhood is the U.S. equivalent of IG, where retail traders now comprise 25% of the volume in the stock market. More than simply adding 3 million accounts in Q1 2020 alone and boosting its valuation to $8.3 billion pre-IPO, Robinhood has become a bonafide cultural phenomenon. Whether or not Robinhood retail traders are actually controlling smart money in the coronavirus market, Jim Cramer et al. think that it is.
The Era of Fast Cash?
If you let Portnoy or Reddit tell the story, today’s market is easy money and everyone is making a killing day trading. You don’t need skills to swing trade your next new car — all you need is access to the market. Just open a Robinhood account and start trading. Between the Fed floating the market and everything selling at a discount since March, you can’t lose.
For anyone old enough to remember the run-up to 2000 or 2008, it’s the same old story of Kennedy’s shoeshine boy. When the town idiot starts giving stock advice, it’s time to sell, sell, sell. And with today’s fintech providing leverage and accelerated trading as fast as the client wants to go, brokers and smart money can wipe out newbie accounts faster than ever. You’ll never hear about those stories, though. Folks with $2500 in stimulus money who get wiped out don’t have time to write about it on Reddit. They have to spend their time finding a new job.
Getting in on the Fun
Newbie wipeouts aren’t your problem. Learning how to capitalize on market conditions is. If you’re looking to transfer some of that Robinhood money into your own pocket, heed the wise advice of Einstein: “No problem can be solved from the same consciousness that created it.”
If you want to participate in one of the biggest wealth transfers of dumb money to smart money, don’t trade with the folks in Robinhood. Here’s why.
Downtime during volatility — Robinhood experienced three full outages during the most volatile trading days in March. Enough said.
Flawed sentiment analysis — net lets anyone see how many Robinhood accounts hold a stock and at what price level. Robinhood users are known for buying beaten-up stocks when they fall and FOMOing into stocks that are rallying. This is a short seller’s dream. Robinhood traders lost big bidding up Nikola (NASDAQ: NKLA), a Tesla clone, to inexplicable $90 levels in early June right before Nikola registered the resale of 52.5 million private investment in public equity (PIPE) $10 shares in mid-June. The price corrected by more than 50%. The PIPE share release was public information, but if you’re just looking at current price and accounts holding, you completely missed the most important information.
Screengrab of Robinhood.net
No buying options on expiration day — Robinhood doesn’t allow its traders to buy options on their expiration day. This leads to gunslingers buying in heavily on Thursdays. Short side strategists can do some great things with this guaranteed volume, especially on earnings plays.
A Different Consciousness
The way to best capitalize from the Robinhood craze is to trade against Robinhood traders. If that’s the case, trading from a platform that is known for an intuitive interface, lightning-fast execution and helpful proprietary news feeds is your best bet. TD Ameritrade lets you see all of the market angles that other traders miss, giving you a sizable advantage over traders with blinders.
Of course, no platform can overcome a lack of patience and poise in the market. The main lesson of Robinhood, which will certainly become apparent in the coming months, is that there is no such thing as fast money. The market will continue to punish those that don’t respect it — seemingly robbing from the poor to give to the rich yet again.