Robinhood Bros Beware | Podcast Episode #102

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market.

0:30
And there’s no doubt that in recent weeks and months. I’ve been kind of critical About the Robin Hood Traders, right, I call them Robin Hood Bros. A lot of these people that are getting into the stock market. They’ve been using stimulus checks, they’ve been using unemployment, the extra $600 a month and they’re just throwing it into the stock market.

0:46
They’re getting credit lines, they’re getting second mortgages, it’s all very bad. Now, that doesn’t mean that there isn’t some good Robin Hood Traders out there but the Robin Hood Bros as a whole. They’re not really using a lot of discernment when it comes to trade and they’re just jumping in whatever everybody else is trading in. If this stocks running, I’m going to trade in that if David portnoy’s buying this, I’m going to buy that as On there.

1:05
Just, it’s just a herd mentality. And so there was a recent article in the New York Times and you can Google it. I can’t really give a link over a podcast, right? But anyways, it’s called Robin Hood has lured young Traders sometimes with devastating results. I’m just going to go through this article with you and just kind of give you some feedback, it’s a kind of a different approach on a podcast and what I’ve done and ever before.

1:24
But I think it’s a good article enough and I’m not even really a fan of New York Times. I’m really not. This is a good piece of Journalism here and so anyways, it has a subtext that says its users buy and sell the riskiest Financial. Products and do so more frequently than customers at other retail brokerage firms, but their inexperience can lead to staggering losses.

1:41
Now they highlight the sky Richard to bot. See, I don’t know if I said his name right? Okay, he’s a guy from San Diego, he lost eight hundred and sixty thousand dollars back in March on the Robin Hood app. I mean it was crazy guys. Like 31 years old or 32 years old and he signed up in 2017.

2:00
He funded his account with fifteen thousand dollars in credit card advances. First off, that is Literally the worst thing that you can do to get into the stock market, is by taking on debt, absolutely the worst possible thing. My mind blows on the second paragraph of this article.

2:16
Just because it says, the guy took 15,000 dollars out in credit card advances and it just says that he kept on losing money. And so what, what did he do? He took out two. Thirty thousand dollar home equity loans. Dude, this is a guy with a family and a wife and he’s taken out to thirty thousand dollar home equity.

2:35
Woody loans, dude. That’s a problem right there. That’s not a guy that’s looking after his family. He’s got a gambling addiction. I’m kind of curious. Did he tell his wife, he was doing all this stuff because I feel like any any functional marriage, would probably have a spouse that would say, you know what, just from the outside looking in, this doesn’t look like a normal thing that you should be doing, but anyways, he took out to thirty thousand dollar home equity loans, so he could buy and sell more of these speculative stocks he was doing and he was even getting into options, and he had all these debts that were accumulating.

3:05
Eating right. But here’s the irony of it all. Dude his his value in his account shot up to over a million dollars. But then all of it disappeared and his balance is now only six thousand nine hundred and fifty six dollars. Here’s so here’s what’s so crazy about that.

3:21
I know a lot of people that had similar stories back in the 1990s, late 1990s. I had one guy, our I’ll never forget this. So it’s probably back in 2003. He told me about this, he had bought Sun Microsystems. I think he said that he was worth four million dollars at the time, which is a ton of money. And I just remember looking at him with these, like big eyes and like, oh my gosh, you didn’t say I was like, no, my magic.

3:41
Number was 5 million. I was getting out. So here’s the crazy thing. He said his magic number was five million dollars. Okay, I was a new grad out of college at this time. His number was not 5 million hindsight. He says, I would have gone out with 51. That’s what he’s really trying to tell you. He’s trying to think that he would have, but when he would have hit five million, he would have been greedy for 10 million.

3:59
And if you would have hit 10 million have been increased greedy for 15 weeks. The same thing that’s unfolding this guy, he was up over a million dollars. Do you think he was stopping there? No he wanted to million and if you got two million he wanted 25 million from five million to 10 million. That’s how it works. There’s a movie out there called Wall Street part, 2 money never sleeps.

4:14
You guys are probably heard that any case, there’s a scene in the movie that was really telling and it’s the basis for everything. I’m telling you right here. The young guy, I can’t remember his name, but he was like one of the main characters is Shia LaBeouf or whatever that dude’s name is and it was Josh, Brolin there talking and Josh Brolin’s playing the role of a guy who’s very rich on Wall Street making millions and millions of dollars and And the shy of character, he’s, he’s young and new to the game, but he’s starting to get his feet wet, starting to make a name for himself, he’s over at the guy’s house.

4:43
And he says, what’s your number? The guy says, what do you mean was, what’s your number? And I think he thought maybe he was talking about, like, an art painting or something. Was like, no. He’s like, what’s your number that you need to be able to walk away from this game and never come back? And he kind of laughed at him and he just said more Now, why is that?

5:00
Why is that so interesting is because that’s what most Traders are doing to themselves to is that they never know when to get out. They never know when to say hey you know what, I got really freaking lucky. I just took a fifteen thousand dollar credit Advanced out and then to thirty thousand dollar home equity loans out and I made a million dollars off of it.

5:20
I will be off to the best. Start that I’ve ever been. I’m going to pay off those debts. I’m going to pay off my house. I’m going to pay off whatever student loans that I have. I’m going to go get myself a nice house. I’m going to put the rest of it. Probably some interest-bearing assets, okay? And then maybe just start over with like 25 thousand dollars in your head, okay, maybe just take like fifty thousand dollars in just trade with it, learn to trade right but no, 1 million wasn’t enough, he needed more.

5:41
So just going on through this article, it I talked about when he is doing his trading, he won’t want to eat. That’s what his wife said, he would have nightmares at night, red flag, right there. He’s trading with too big, a position sizes, not only that he’s trading with debt, don’t do that either. That’s what happens to when you trade in the margin, that’s why I don’t trade a margin, I trade with my money but He’s trading and debt, he’s paying interest on that debt.

6:01
Obviously, nobody gives you free interest loans, unless you’re a bank getting money from the Federal Reserve, right? Or your Amazon getting a point, eight percent interest, but the guys have a nightmare, she can’t eat Dude, too big a position sizes, you’re going to be sick, you can’t do that. That’s a automatic Telltale sign. You need a curb back, your position sizes and in this case you need to stop trading with debt.

6:20
The article goes on to talk about Silicon Valley and how it created Robin Hood between these two young guys, that came out of Stanford has an eight point three billion dollar, Elation, the article goes on to talk about some things that the employees who didn’t want to be named at Robin Hood said, about the company and how uses nudges and push notifications to push and experienced investors into the riskiest trading situations, according to an analysis of Industry data and legal filings as well as interviews with nine current and former Robin Hood employs more than a dozen customers.

6:52
And apparently, the data shows that it’s best for the company when they do that. Here’s the crazy thing and the first three months of 2020, Robin Hood users. He’s traded nine times as many shares as E-Trade, customers and 40 times as many shares as Charlotte Charles Schwab customers per dollar, and the average customer account in the most recent quarter, and they also bought and sold 88 times.

7:12
As many risky, option contracts as Schwab customers relative to, the average size account. According to analysis, what does that mean? They’re just, they’re just buying YOLO calls, man. These people are doing that. They’re buying penny stock trash. They’re going after dumpster-diving corporations.

7:27
They’re going after the Hertz is of the I told you not to take my word for it. Look at Robin Hood track dotnet. I think is the website they show you all of the current popularity changes in stocks, the most widely held positions among Robin Hood users goes on to talk about the technology issues. I mean there was one day where the robin who has shut down for two days and was during some of the most volatile violent Market action we have ever seen before people lost a lot of money.

7:50
Now, it talks about the guy, Alex currency was 20 year old college student to Braska kills himself. After he logged into the app to find a balance had dropped to negative 7. And thirty thousand dollars. It was a figure that was partly because of some incomplete traits that he didn’t make. And in his suicide letter, he wrote quote, there’s no intention to be assigned this much and take this much risk.

8:08
So, it talks about how Robin Hood’s average customer is Young and lacks investing know how I believe it, because I’ve gone a lot of these people emailing me, not even realizing what days, the markets are open, what days are closed? Most of them are happening to be, why am I, why am I getting flagged as a pattern day trader? Well, there’s some regulation there and you’re day trading.

8:26
You can’t do that. If you have an account less than Dollars. Not my rules. Is the government’s rules. It was some crazy stuff here. This is one of my favorite paragraphs in this article. It says, some have visited Robin, Hood’s headquarters in Menlo Park, California, and recent years that confront the staff about their losses.

8:41
Do these people are going ape, they’re taking all these losses in there. Like, I’m confronting them. Anyway, you don’t know why they’re having to go down to the headquarters. Robin Hood doesn’t even have a phone number. They don’t have a phone number. Oh, he’s people. If they’re not getting answered answers to their emails, which I’m sure Robin who gets a tons of emails. They’re going down to the headquarters and what’s crazy He is that they had that this, that the Robin Hood headquarters had to install bulletproof glass at the front entrance.

9:05
I mean there had to be something that sparked the whole, that’s install. Some bulletproof glass. There had to be some crazy crazy. Get the cops involved kind of instances that’s going down at the Robin Hood headquarters. So yeah, Robin Hood’s business. It wants you to trade more because the more they can get people to trade, the more they get in profits for their companies that are trying to incentivize our customers to trade more.

9:26
And this is what New York Times says here. It says, that’s because it makes money. Complex, practice known as payment for order flow and it says that every time that a Robin Hood customer trades. There’s Wall Street firms out there that actually buy or sell the shares and determine what price. The customer gets these firms. Pay Robin Hood for the right to do this because they engage in a form of Arbitrage by trying to buy or sell the stock for a profit over, what that Robin Hood customer will receive.

9:47
Obviously this isn’t new to the trading World. We’ve been known about this for years, right, everybody pretty much does it. But Robin, he gets a ton of money. Why? Because their customers are probably more profitable than your e-trade, customers, or your TD Ameritrade customers. These people are Training like crazy, they’re probably trading with bigger bit and ask spreads, so that there’s probably more opportunity for these Wall Street firms to make more money off of them.

10:08
But does that article actually, says Robin Hood. Got 18,000 $955 from the trading firms for every dollar and the average customer account while Charles Schwab made a hundred and ninety five dollars. That’s crazy. That’s 15 times. More than what Schwab gets. TD Ameritrade gets 1881 dollars.

10:24
While each egg is 1326. That’s crazy. So, I didn’t know this either, but It back in June Ashton Kutcher. That guess he is invested in Robin Hood as a company. I’m assuming, that’s might be like an angel investor attended. One of the companies weekly staff meetings on zoom and celebrated success, by comparing it to gambling websites.

10:42
According to three people who are on the zoom call. Now Kuchar, backtracked us old statement, obviously. And he’s trying to say, oh no, there’s there’s no comparison of business models nor the experience that Robin Hood provides its customers. But the app tries to almost make it like a slot machine.

10:58
You click on one of It’s trendy stocks of the day, a green button pops up with the word trade. You can just buy it right there, man. No sweat. I mean, you go through Fidelity and you’re like confirm, this order confirmed, that thing, you know, and it’s like asking you everything about it, right? Robin has just press a button.

11:13
I’ve never even used the app before, okay? But I’ve seen the interface, it’s crazy. It’s literally like a freaking Casino. So, how popular is Robin Hood been? It’s got 13 million accounts up from 10 million at the end of 2019. As more than Schwab, as more than any trade, you trade only has five and Million Robin has 13 million accounts, 13 million.

11:33
Here’s a crazy thing. That’s reliability. 47 times. Since March has Robin Hood gone down versus 10 times for Schwab 47 times. Do that I would lose my mind over something like that. I’d lose my mind over ten times. Our Schwab TD, Ameritrade snow st. I use them, it goes down, a bunch, I’ve used Fidelity, they go down to, but I don’t see anything that’s bad as Robin Hood.

11:51
I would never ever use a Robin Hood up. And according to, for Robin Hood employees, who declined to be identified said the outage was rooted in issues with the a company’s phone app and servers. They said the startup had under invested in technology moved too quickly rather than carefully. Yeah, that’s pretty obvious.

12:07
Here’s a fun. Hey here, miss mr. Do batas that guy was talking about earlier. He said, he suffered his biggest losses during the march outage the eight hundred sixty thousand dollars that he says, his record shows. So he’s planning on taking his case to financial Regulators for arbitration do so he’s blame it on them to anybody who lost money.

12:24
They’re going to say that they couldn’t get in on their account. On that particular day that we would have sold. I tried to sell but Couldn’t get in. And how you going to prove it? Otherwise you’re trying to improve intentions and you can’t. Anyways. This, this article is crazy. Again. I would recommend that you read it. I just kind of gave you like a summary of it?

12:43
But yeah, it’s called Robin Hood has lured young Traders sometimes with devastating results. I’m not a fan of Robin Hood. I’m not a fan of what they’re doing that. Trying to give you that impression. I they’re saying that they don’t do it intentionally but it sure does seem like it. Okay.

13:02
But my goodness, the people who it’s attracting, they’re making awful decisions for themselves. And yes, every brokerage a out there has people who are blowing up accounts but it seems like the Robin Hood Traders. They don’t know what the heck they’re doing as a whole. There’s some good ones out there.

13:19
Like I said I know there’s some good ones out there and this podcast isn’t for you. Keep doing what you’re doing ma’am. This herd mentality, keep falling. Everything that’s going up and just keep going higher and higher and higher and higher and showing no regard for risk or reward. That stuff’s gonna kill you, man.

13:42
The best way to do is about by managing the risk, let’s go and do it for today. I know it’s a little bit fired up this article blew my mind. If you have any questions though, make sure to reach out to me. ryan@shareplanner.com. Thank you. God bless.

13:57
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14:20
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