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Fractional Shares

blog.robinhood.com

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Re: Fractional Shares

#61

Post by Animats »

jdsully wrote: post #58
slg wrote: post #53

Earlier quoted context omitted.

Doesn't that rely on you being the actual owner of the shares? If your shares only exist in Robinhood's database, I don't think SIPC would apply. EDIT: After some Googling it appears that SIPC does protect securities that weren't actually purchased due to fraud or mismanagement. IANAL so I don't know if that would apply to this specific situation, but they have protected other non-owners before like in the case of Be…

Even with full shares they are held in street name - that is the brokerages name. So the story isn't much different than it is today.

No, they are held in "street name" but the customer still owns them. You're not just a creditor of the broker. I've had a broker go bust, so I've been through the unwinding process.

A broker which just has pretend stock ownership as a book entry with the broker is called a "bucket shop".[1] A crime in most US states since the 1920s.

[1] https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

Re: Fractional Shares

#62

Post by Ambele »

tempsy wrote: post #47
skybrian wrote: post #37

Earlier quoted context omitted.

Do we want to encourage teenagers to buy stock in individual companies? Index funds I could see.

Why not? Mainstream personal finance advice is pitiful. There's wide consensus that ETFs are a bubble. On the other hand, the notion that buying an individual stock is equivalent to gambling is nonsense.

2/3rds of hedge fund managers underperform the S&P500 index so it's recommended for all investors to keep some index fund ETFs around (like VTI or VOO) as a benchmark to outperform.

Re: Fractional Shares

#63

Post by jdsully »

Animats wrote: post #61
jdsully wrote: post #58

Earlier quoted context omitted.

Even with full shares they are held in street name - that is the brokerages name. So the story isn't much different than it is today.

No, they are held in "street name" but the customer still owns them. You're not just a creditor of the broker. I've had a broker go bust, so I've been through the unwinding process. A broker which just has pretend stock ownership as a book entry with the broker is called a "bucket shop".[1] A crime in most US states since the 1920s. [1] https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

There may be regulatory technicalities that must be sorted out. But there isn't any reason this couldn't be handled in exactly the same way as street name shares are today. Voting rights would be interesting.

Re: Fractional Shares

#64

Post by wefarrell »

kelnos wrote: post #57
bob1029 wrote: post #39

Earlier quoted context omitted.

I've been with Robinhood for over 3 years and I have had zero issues with my portfolio or any features around managing my account day-to-day. The only thing that tripped me up was the transition from Apex to their own clearing house, so I had some extra paperwork to file w/ the IRS during that transition year. I see a lot of people saying things like "I don't trust Robinhood with my money". I am curious what scenario…

Not the parent you're replying to, but I don't think I'd say I wouldn't trust Robinhood with my money. As you say, they're a SIPC-insured, regulated entity. What I would say is that I just don't trust Robinhood as a company. They feel scummy to me, and their marketing and UX pushes practices that I would not consider good investment advice. I can only assume that pushing frequent trading (and poorly-described options…

Agreed. They've adopted the addictive UX patterns of other applications, which is irresponsible for an investment platform. It encourages gambling and making poor trading choices.

Push notifications are a prime example of this. They encourage users to act on short term news rather company fundamentals, which is a dangerous mindset for novice investors. Fortunately for them they've been operating solely during favorable market conditions but when the market does crash I fully expect them to face backlash.

Re: Fractional Shares

#65

Post by throwaway34241 »

tempsy wrote: post #47
skybrian wrote: post #37

Earlier quoted context omitted.

Do we want to encourage teenagers to buy stock in individual companies? Index funds I could see.

Why not? Mainstream personal finance advice is pitiful. There's wide consensus that ETFs are a bubble. On the other hand, the notion that buying an individual stock is equivalent to gambling is nonsense.

Can you expand on how index ETFs are a bubble? You say that there's wide consensus, but when I researched it the consensus seemed to be that indexing was the right strategy for most people (and even sophisticated investors like Warren Buffett have instructed his trusts to use an indexing approach).

Beating the index is a zero-sum game, for every winner there must be a loser. Of course you can make educated choices based on the fundamentals but the same is true for sports betting too. Unlike sports betting, you are directly competing against a large number of pretty smart people who play this zero-sum game as a full time job. And some of them even have inside information.

Not that it's impossible to win of course. I can easily imagine someone with deep expertise in a certain area having a key insight about a specific company that others don't, or someone who analyzes company balance sheets and business fundamentals to come up with an independent valuation being above-average at that. It's hard to imagine that either of these groups represent the average person who will trade fractional shares on Robin Hood though.

Re: Fractional Shares

#66

Post by snarf21 »

Animats wrote: post #15

Do you really own anything, or are you just lending money to Robinhood? Does your fractional buy get reported to the transfer agent for the stock? Do you get the annual report? Voting rights?

Think of it this way, it is an index fund of a single stock. All the same rules apply to index investing.

Re: Fractional Shares

#67

Post by Ambele »

kelnos wrote: post #60
Ambele wrote: post #56

Earlier quoted context omitted.

Sometimes learning experiences are worth as much as the money. Also, it's easier to panic sell index funds you aren't attached to than individual stocks you're emotionally attached to. How do you perform a valuation on an index fund like you can with a stock? To paraphrase Warren Buffett's investment advice, if you have a high IQ, donate the extra points to someone else because what you need more is a strong stomach…

> it's easier to panic sell index funds you aren't attached to than individual stocks you're emotionally attached to. If emotions are a part of your decision, you've already lost the game. I get that humans are emotional creatures, but if you start making investment decisions based on panic and emotions, it doesn't matter if you've been buying index funds or individual stocks; you're going to perform poorly and likel…

> If emotions are a part of your decision, you're going to perform poorly.

I agree. Hacker News readers are more logic based but the rest of the world is more emotional based. For most people, the emotional half of the brain dominates the logical half of the brain. I think we can agree that being invested in a diverse basket of 20+ stocks with 5% or less of the portfolio invested in each is regarded as a pretty safe bet. I also think we can agree that anyone who invests will do better in the long run than people who don't invest.

The news commonly sells convincing chichen-little fear that the sky is falling, the market's gonna crash, and we should all flock to gold. But I know with higher certainty that Amazon will keep shipping packages, Target will keep selling merchandise, Apple will keep selling more iPhones, and VISA cards will keep collecting interchange fees.

We can debate though whether it's better to hold an index fund you might panic sell or individual stocks that you plan to hold forever.

Re: Fractional Shares

#68

Post by hrez »

Ambele wrote: post #52
mushufasa wrote: post #14

FYI, Folio has been offering fractional shares for over a decade. They're terrible at marketing and don't have as slick an app, but they control their full stack down to the DTCC. They cover their traces in patents, so I'm not sure Robinhood is doing the same thing as Folio has battle-tested https://www.folioinvesting.com/folioinvesting/brokerage-feat... (I do not work for Folio)

M1 Finance already has fractional shares too. They're newer than Robinhood but they're built to be more of a long-term investing platform. Robinhood's UI feels more like a gambling platform to trade hourly on IMO. M1's "Pies" feature is very compelling. https://www.m1finance.com/how-it-works/invest/pies (I do not work for either. I've used Robinhood for 4 years.)

It's Apex Clearing that provides fractional shares ability to the bunch of discount brokerages and roboadvisors.

Edit: Looks like Robinhood moved out of Apex to their own clearing.

Re: Fractional Shares

#69

Post by awinder »

Ambele wrote: post #52
mushufasa wrote: post #14

FYI, Folio has been offering fractional shares for over a decade. They're terrible at marketing and don't have as slick an app, but they control their full stack down to the DTCC. They cover their traces in patents, so I'm not sure Robinhood is doing the same thing as Folio has battle-tested https://www.folioinvesting.com/folioinvesting/brokerage-feat... (I do not work for Folio)

M1 Finance already has fractional shares too. They're newer than Robinhood but they're built to be more of a long-term investing platform. Robinhood's UI feels more like a gambling platform to trade hourly on IMO. M1's "Pies" feature is very compelling. https://www.m1finance.com/how-it-works/invest/pies (I do not work for either. I've used Robinhood for 4 years.)

Problem that m1 is going to have imo now is the once a day trading window. The value proposition for this market has seriously changed with the big player move to free trades, and fractional shares are a good wedge since the bigger players don’t have that. But now m1 is a smaller player with more restrictions than m1, and it’s going to be tough.

Re: Fractional Shares

#70

Post by Gunax »

I don't quite understand the appeal of investing via phone app. Investing my life savings (any any amount really) is one of the few things I would absolutely not want to do on a phone touchscreen.

When I heard of Robinhood I thought it would fail for sure... I guess that shows how much I can predict startup success.

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