In late July, Robinhood Markets (Nasdaq: HOOD) went public.
Robinhood is a monetary companies platform that permits customers to put money into shares, exchange-traded funds, choices, gold and cryptocurrencies.
And it was one of the crucial extremely anticipated preliminary public choices (IPOs) of 2021. Only a few days after its IPO, its inventory surged greater than 24%.
However I didn’t like Robinhood’s enterprise mannequin and advised Alpha Buyers so in March 2021:
I’ve by no means been a fan of Robinhood. Actually, I believe the corporate does a giant disservice to beginner traders and merchants by making investing “enjoyable”…
That’s a crimson flag as a result of it provides method for individuals with no investing background to let their cash fly out the window.
What actually irked me had been issues such because the app’s confetti characteristic. It made investing seem to be a sport. I wasn’t the one one who didn’t prefer it. Regulators didn’t prefer it, both.
And for a lot of on a regular basis traders, making investing right into a sport results in devastating outcomes…
Half of the corporate’s younger buyer base has no investing expertise. So, most Robinhood day merchants lose cash. Some have even misplaced over $700,000 or $800,000 in a matter of months.
It ought to come as no shock that I wasn’t all in favour of shopping for the inventory.
And now, the wind has been taken out of the corporate’s sails. As I write right this moment, Robinhood’s inventory is buying and selling round $19 per share.
That’s a 50% decline from its IPO worth — and practically 78% decrease than its intraday excessive of $85 in August.
(Click on right here to view bigger picture.)
However this doesn’t shock me within the least…
Investing Is Not a Recreation
Robinhood’s marketing strategy was all about turning investing into enjoyable and video games.
Investing is a number of issues, however one factor it’s not is enjoyable and video games.
The Actual Discuss is that making a living within the inventory market is severe enterprise.
Each time we purchase a inventory, we’re shopping for a bit of a enterprise. And that requires analysis and evaluation. The enjoyable half is making a living from our exhausting work … not buying and selling shares.
Individuals who’ve purchased sizzling IPO shares like Robinhood have realized that the exhausting method.
As The Wall Road Journal studies…
Of the greater than 380 firms which have launched IPOs within the U.S. this yr… In complete, practically two-thirds of these firms are buying and selling beneath their provide costs.
That’s as a result of most of those companies aren’t sound. For instance, Robinhood has been plagued with issues from the beginning…
It’s seen all the pieces from conflicts with regulators to drops in income and most just lately, an information breach of person information involving 7 million prospects.
And in contrast to the legendary heroic outlaw Robin Hood, Robinhood Markets makes its cash off of unsuspecting first-time traders.
I can’t get behind a enterprise mannequin that pulls novices like that. I don’t wish to be companions with companies that battle with my values and gained’t profit society.
Once we purchase shares, we get to choose and select who we turn into “companions” with. One of the best factor you are able to do is purchase shares in firms with values that allow you to sleep simple at night time.
And people are the sort of firms I like to recommend in Alpha Investor. So keep tuned for extra alternatives forward.
Founder, Alpha Investor