“Charles, might you inform me about your newest ‘play’?”
That’s all it took to tick me off.
I didn’t have my morning espresso but, and I used to be already a bit cranky.
So, I went off on my colleague…
I instructed him how I hate the phrase “play” when it refers to investing.
If you wish to know extra about my newest advice, no downside.
I’m greater than glad to share it with you.
Nevertheless it actually grinds my gears when individuals gamify investing.
That’s why it shouldn’t be a shock to you that I’ve by no means favored Robinhood…
Beginner Buyers
Robinhood has a buying and selling platform on a cool app that lets customers purchase shares, gold and cryptocurrencies.
The corporate was based a couple of decade in the past and doesn’t cost commissions.
In different phrases: Buying and selling is free.
And its advertising technique is targeted on millennials.
So, its easy-to-use app attracted tons of younger customers in the course of the COVID-19 pandemic.
At one level, Robinhood had a confetti function to rejoice trades — till regulators received on its case.
It racked up 21 million energetic customers, and the sky gave the impression to be the restrict.
Robinhood was quickly hailed as a “disruptive innovator” that was going to alter the world.
And on the finish of July 2021, the corporate went public at $38 per share.
Just a few days later, it greater than doubled!
Fairly quickly, I received a couple of emails from subscribers asking if I used to be going to suggest the inventory.
My reply was agency: “NO.” Right here’s why…
No Play
Robinhood’s enterprise mannequin and gamification of investing was an enormous purple flag.
The consumer base was rising due to the lockdown and a hovering market.
With out these two situations, I couldn’t determine how they’d proceed rising.
As well as, half of the corporate’s younger buyer base had no investing expertise.
Getting individuals with no investing background to commerce and take dangers is simply plain flawed.
You’ve gotta be nuts to assume that you can construct a brokerage enterprise off of that consumer base.
The corporate was an accident ready to occur.
In actual fact, right here’s what I mentioned again in March 2021, a couple of months earlier than the preliminary public providing (IPO)…
“I believe the corporate does an enormous disservice to beginner traders and merchants.”
And since then, Robinhood’s income per consumer fell off a cliff.
Income per consumer plummeted as soon as the lockdown was over and the market fell.
Income per consumer is down from a peak of $137 to $56.
That’s not good for a corporation that’s purported to disrupt the monetary business.
The wind has come out of Robinhood’s sails because it continues to put off extra of its workers.
And Robinhood’s inventory is now buying and selling 76% off its excessive.
Whereas many traders received excited in regards to the firm’s story…
They forgot to look below the hood to take a look at its enterprise mannequin.
Within the Clouds
There was no manner that Robinhood was price $30 billion at its IPO.
And it was pure fantasy to assume it was price near $60 billion a couple of days later, both.
At $60 billion, Robinhood’s market cap was just a bit bit lower than brokerage agency Charles Schwab’s.
There have been even comparisons of Robinhood to Schwab.
However that’s like evaluating a Little League Baseball group with the New York Mets as a result of they each play baseball.
That’s pure poppycock.
And to assume … Schwab generates billions of {dollars} in revenue, whereas Robinhood isn’t worthwhile.
I ponder if those that purchased shares at $50 or $60 took a second to consider that.
As a result of on the finish of the day, a inventory is a bit of a enterprise.
So, in the event you purchase corporations which are extra story than substance, you run an enormous danger of dropping your cash.
However in the event you purchase companies which are extra substance than story, you can also make cash and sleep higher at night time.
These are the type of corporations I like to recommend in Alpha Investor.
In actual fact, I’ll be popping out with my newest advice to the portfolio quickly.
So, Alpha Buyers ought to regulate their inboxes for it.
And in the event you haven’t joined the household but, learn how to grow to be a member proper right here.
With our technique, you don’t have to fret about dropping sleep — it doesn’t matter what the market does.
Regards,
Charles Mizrahi
Founder, Actual Speak
