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We Have Now Reached Peak Robinhood (Implications) – Mike Swanson

Robinhood has announced a new marketing initiative to recruit millions of new traders. The nature of this new initiative, though, is not a sign of strength for the company, but a sign that we are now at peak Robinhood, which has implications for the markets going forward.

First, let’s turn back the clock a bit to understand how we have gotten to this key moment.

One of the market narratives that took hold in 2020 and then exploded month after month is the “empowerment” of the small trader via the Robinhood app. MILLIONS of small traders got into trading for the very first time after the market meltdown of 2020 via the Robinhood app. These millions of new people brought new money into the markets, which helped to drive a tremendous rally in many big cap tech stocks in the final quarter of 2020.

They indeed became an important factor in the movement of stocks in the market, for awhile.

Their influence took hold in the imagination of everyone in the United States when the story of Gamestop dominated the 24/7 news cycle at the end of this past January. Gamestop went up on a short squeeze triggered by herd trading on Robinhood and Reddit message boards that the Robinhood traders are members of.

At the time, people like Tucker Carlson and Rachel Maddow united in telling their audiences that the activity in Gamestop represented a new revolution of small traders via the Robinhood app that put them on the cusp of changing the financial markets forever by being able to thwart hedge funds.

Of course, just as they were saying that shares in Gamestop topped and been dead ever since. What is important is that this moment back in January became the moment in which everyone realized the power of the small Robinhood trader, and millions of more Americans responded by opening Robinhood accounts of their own to get into the game by buying stocks on the top 100 most owned Robinhood list and crypo coins, which Robinhood guides people into trying to trade by showing them the cryptos right when they log into their app.

But, Gamestop dumped and has gone nowhere since, to be a harbinger of the experience most Robinhood traders would go through themselves, as the Cathie Wood ARKK ETF also began to lag the markets along with almost all of the top 100 most owned Robinhood stocks.

When I got into trading in the 1990’s I remember seeing flyers in stores and shops of free AOL disks to get on the internet. I also remember flyers to open up a credit card when I went to college.

Robinhood has decided to target millions of college students with a new campaign this fall. They are letting people open new accounts with NO money down. Not only that, but they are actually funding these new account holders with $15 and entering them into a drawing to win over $20,000. So, they are basically trying to get people with NO money to open up a Robinhood account by giving them a free entry into a big lottery. All they have to do is open up an account with a school email address, as proof that they are a college student.

This is madness, and really is a sign that they are scraping the bottom of the barrel.

What kind of brokerage wants to gather assets of people who can’t even fund an account with $15?

Oh, but they are getting college students they might say.

Well, there are 20 million college students in the United States and Robinhood ALREADY has 3.8 million of them.

So, they already got most of the “good” ones – the ones that got enough money to fund an account.

What this shows is that Robinhood has reached complete market saturation and is stooping to the bottom of the barrel to try to get any customer they can.

Robinhood has peaked in terms of growth.

This is the peak of the Robinhood story – in terms of the growth of the company and the power of the Robinhood trader.

The next chapter is going to be a bad one.

You see, they can’t move up stocks like they used to do and in fact are poised to now lose money, because so many of the stock and crypto plays that dominate the most owned stock list inside the app are JUNK companies that are dependent on more fools opening apps and buying to chase.

But, Robinhood is now going after people with NO MONEY to open accounts.

In the end, the next chapter is going to be one of devastation and losses.

Last year there was one awful story of a Robinhood boy killing himself.

I hope we don’t hear anything as bad as that happen again, but in 2009 the US Congress passed a bill to banish credit card companies from advertising on college campuses.

Don’t be shocked if something similar doesn’t happen to Robinhood and other brokerages in the next few years.

BTW – this is the graphic Robinhood made to announce this marketing initiative.

These images are completely banal.

Investing is not a gambling game, but something to take very seriously. because serious people are the ones that win at investing and trading. If Robinhood was able to get customers with money they would be advertising on Bloomberg or CNBC, instead they are enticing people with a free lottery.

Robinhood announced this with this phrase – “Calling all students : class is now in session.

Well, they are going to end up on the school bus to hell now.

Yes, the Robinhood trader helped the stock market go up in 2020, but now we have reached peak Robinhood.

For the market to go up in 2022 like it did up until this past September will take a new source of big money buying power to come into the markets, these few million new Robinhood people with no money they are trying to recruit will not be enough.

Robinhood traders are all-in stocks and crypto coins and Robinhood has reached peak growth.

In fact at some point I would even consider shorting Robinhood stock.

If the future of Robinhood traders was bright then stock traders would be bidding the HOOD stock up to new highs. Instead it is LAGGING the S&P 500 and the new marketing initiative has brought no new buying into it.

-Mike

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