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Robinhood and How to Lose Money

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Re: Robinhood and How to Lose Money

#101

Post by toastal »

renewiltord wrote: post #27
dmoy wrote: post #11

I do not get the appeal of largely gambling with your money on RH instead of just passively investing for the long term. Maybe with some of your money, but not to the extent a lot of people are doing. People want to get rich quick I guess? Even if you do want to do that, why not pick a brokerage which doesn't take as much from you, like IBKR? It's just a surreal situation to me.

Same with gambling, I imagine. The utility of 107% guaranteed of this dollar is less than a less than one in a billion chance at a billion dollars. The net expected value of the dollar doesn't have to be positive. Losing $2000 over 80 years of your life is certainly worth is a non-factor for many. Add in the fact that RH has reduced barriers to entry to investing. It's way easier to get RH and buy VOOG than to get Va…

I know a couple of people that did just that. With the lowered barrier to entry (free), people have been able to buy say a single share per paycheck instead of having to hold on for months to get a cost effective amount of cash to make it worth the trade. Not only this, but you can effectively dollar cost average your way into the market to minimize losing to bad timing. The trade fees were always absolute and not a percentage so it just never accessible to a lot of people -- and now, a lot of the big discount brokers went to 0-1¢ fees.

Re: Robinhood and How to Lose Money

#102

Post by kiplkipl »

WalterBright wrote: post #80
TheOtherHobbes wrote: post #78

Earlier quoted context omitted.

This is like arguing that because twelve people a year become multimillionaires after buying a lottery ticket, the lottery can make you rich. The empirical evidence is clear - for most people, day trading of any kind is a reliable way to lose money, and even buy-and-hold can kill you if pick the wrong asset class. (Ask Warren Buffet.) You may be lucky, you may have an unusually effective model - but the odds are you'…

Just invest in the S&P 500. It isn't rocket science.

500 companies in one country isn't diversified.

Re: Robinhood and How to Lose Money

#103

Post by tylerhou »

renewiltord wrote: post #27
dmoy wrote: post #11

I do not get the appeal of largely gambling with your money on RH instead of just passively investing for the long term. Maybe with some of your money, but not to the extent a lot of people are doing. People want to get rich quick I guess? Even if you do want to do that, why not pick a brokerage which doesn't take as much from you, like IBKR? It's just a surreal situation to me.

Same with gambling, I imagine. The utility of 107% guaranteed of this dollar is less than a less than one in a billion chance at a billion dollars. The net expected value of the dollar doesn't have to be positive. Losing $2000 over 80 years of your life is certainly worth is a non-factor for many. Add in the fact that RH has reduced barriers to entry to investing. It's way easier to get RH and buy VOOG than to get Va…

> Same with gambling, I imagine. The utility of 107% guaranteed of this dollar is less than a less than one in a billion chance at a billion dollars.

Is this really true — from a rational perspective, and not one where someone idolizes wealth or being able to purchase "whatever they want?"

The utility of anything — including money — diminishes as you have more of it. The utility of the next hundred million dollars is less than the first hundred million.

So I don't think a rational actor would take the gamble.

Re: Robinhood and How to Lose Money

#104

Post by NovemberWhiskey »

Cthulhu_ wrote: post #91
WalterBright wrote: post #84

Earlier quoted context omitted.

> inflation Indeed. Hoarding cash is for fools. I'm always bemused by the claims that wealthy people hoard cash.

But they do; sure, they spend heaps on shit like houses and cars and parties and vacations or whatever other hobbies they have, but most of their money is in their companies, stocks, stock options, tax havens, etc. At some point they reach a critical mass where no matter how much they splurge, they will never see their wealth decline. At best the companies / stocks they own will lose some value, but they will NEVER f…

>but most of their money is in their companies, stocks, stock options, tax havens, etc.

That is not "hoarding cash" - keeping your net worth under the mattress or in a savings account is hoarding cash. Perhaps, at the margin, a money market account.

Re: Robinhood and How to Lose Money

#105

Post by jtdev »

Nothing prevents one from taking a more passive “buy and hold” approach on Robinhood - these articles critical of Robinhood seem to conflate Robinhood as a brokerage platform and poor investing discipline... it has nothing to do with the brokerage and everything to do with the investor.

Re: Robinhood and How to Lose Money

#106

Post by kasey_junk »

csa wrote: post #99
kjksf wrote: post #59

Earlier quoted context omitted.

In stock market you're not playing against other people, including the "pros". You try to pick companies that will grow in the future. If you pick well, then it doesn't really matter if other people (including "pros") pick the same company or not because there's enough future growth for everybody. And I have much less reverence towards pros than you. The pros were saying that Amazon's valuation is so crazy that even…

> In stock market you're not playing against other people, including the "pros". In one short sentence, you showed why people are hating on RH. When you buy or sell a stock (or option or whatever), there is a counterparty to your trade. That person is making the trade because, essentially (in an oversimplified way), they believe the opposite of what you believe regarding the value of the underlying stock. One of you…

The zero sum counterparty view of each individual trade is as incorrect as the ‘not playing against other people’ view because it doesn’t account for risk/liquidity across time and space.

If I’m using the market to grow wealth for (example) a child’s college fund, it is largely immaterial if my counterparty then later makes more money holding what I sold to them. More power to them, I needed to be liquid and they made that possible. We both got utility out of the trade.

Similarly, I’ve written HFT algo strategies myself that would aggressively take on losers because by doing so I could get to higher rebate levels. Virtually any modern portfolio is going to be taking on expected losers to de risk the whole portfolio, thats money management 101 stuff. In both of those cases ‘professionals’ ‘lost’ to ‘dumb’ money but everyone received utility from it.

Re: Robinhood and How to Lose Money

#107

Post by mrep »

onion2k wrote: post #100
asa4akj wrote: post #92

Earlier quoted context omitted.

it's called patience and keep on investing. You only need to put 400$ every month into SP500 in order to reach retirement age with more than a million.

A million in 2060 isn't going to be enough to retire on. I'd be surprised if it was enough to buy a moderate house. If you'd done this 40 years ago, the million dollars you'd have today would have the equivalent purchasing power of $300,000 in 1980. Inflation is a cruel master.

"The average annual total return and compound annual growth rate of the S&P 500 index, including dividends, since inception in 1926 has been approximately 9.8%, or 6% after inflation" [0]. With 6% inflation adjusted returns, that'd give you a million inflation adjusted dollars after 45 years of investing $400 a month.

[0]: https://en.wikipedia.org/wiki/S%26P_500_Index

Re: Robinhood and How to Lose Money

#108

Post by csa »

kasey_junk wrote: post #106
csa wrote: post #99

Earlier quoted context omitted.

> In stock market you're not playing against other people, including the "pros". In one short sentence, you showed why people are hating on RH. When you buy or sell a stock (or option or whatever), there is a counterparty to your trade. That person is making the trade because, essentially (in an oversimplified way), they believe the opposite of what you believe regarding the value of the underlying stock. One of you…

The zero sum counterparty view of each individual trade is as incorrect as the ‘not playing against other people’ view because it doesn’t account for risk/liquidity across time and space. If I’m using the market to grow wealth for (example) a child’s college fund, it is largely immaterial if my counterparty then later makes more money holding what I sold to them. More power to them, I needed to be liquid and they mad…

Yeah. That's precisely why I wrote "in an oversimplified way".

Note that you are taking a relatively sophisticated view of financial instruments, and the original poster was not. There is a difference, and that difference was exactly what I was trying to highlight in a simple way.

Re: Robinhood and How to Lose Money

#109

Post by raverbashing »

hftrader998 wrote: post #34

I work in the industry and these kind of articles are always full of bad information about order routing. * Robinhood order flow is informed and toxic like all other brokerages. Taking the opposing side of all Robinhood trades would cause a broker-dealer to lose all of their capital very quickly. * The "bad prices" the "novices" are trading at, are in fact, the same market price that all participants trade at (at or…

Question, does RH (or other brokers) do internal clearing/matching of orders?

That is, they clear the purchases/sales internally if they can, going to "the stock market" only if they can't fill it? Or that is a big no-no for brokers?

Re: Robinhood and How to Lose Money

#110

Post by tptacek »

dlivingston wrote: post #5

Robinhood was an absolute game changer for me. Outside of my 401k (and a Viacom stock my mom bought me 20+ years ago to teach me about the stock market), my investment portfolio was nil. I now maintain a growing but conservative portfolio of stocks thanks partly to the frictionless UX of Robinhood - but, primarily, to the addition of fractional shares. To pay $1500 for a share of TSLA? When I could put that precious…

It's the beginning of the democratization of the market because they made it easier and more attractive for you to buy meme stocks?
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