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Robinhood and How to Lose Money

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Re: Robinhood and How to Lose Money

#141

Post by cs702 »

The main point of this article is that Robinhood has brought Silicon Valley-style maximization of user engagement to retail stock-market trading without regard for the psychological, social, and financial consequences to the people who use the service.

The author claims that for Robinhood, "maximizing user engagement" translates into blindly optimizing for getting more and more individuals to trade more and more. Those individuals are not paying for the product; they are the product. More precisely, they are the raw material for generating as much order flow as possible for sale to Wall Street firms.

Robinhood, in other words, is in the business of MANUFACTURING as much order flow as possible from its raw material, retail investors.

This is probably Not a Good Thing™ for retail investors.

Re: Robinhood and How to Lose Money

#142

Post by AstralStorm »

seanhunter wrote: post #87
d_silin wrote: post #35

Earlier quoted context omitted.

Would you mind explaining a few of those terms? "Informed" and "toxic", specifically.

If you're a broker/dealer, you spend a lot of your time facilitating other people's trades. By "facilitating" here, we mean that you don't only put their trade on the market for them, you often trade with them "on risk" by taking the other side of their trades and then unwinding them. So if you want to sell 1000 tesla I might (as a broker/dealer) just buy them off you and look to sell them myself later either at mark…

The "large enough" argument does not work if you explicitly or implicitly filter or stratify the input to your sampling function. Just like law of large numbers does not work for heavy tailed distributions directly.

In which case your client do not represent the market, either by volume, or by number.

If you can actually know in which ways your sample is different, you can play it then against the market.

Robinhood would optimize its input for small clients with less knowledge, or clients looking for highly speculative risky plays of smaller volume. These are very specific characteristics that likely differ from general market.

Re: Robinhood and How to Lose Money

#143

Post by ivanbakel »

mam2 wrote: post #126
Cthulhu_ wrote: post #89

Earlier quoted context omitted.

You got lucky; your post is why people pick Robinhood and day trading over the long-term one. It's survivorship bias. For every success story like yours, there's at least one - probably more - that lost three-quarters of what they put in. If you're thinking of investing, apply the "strong beliefs weakly held" practice; you think you may get high returns, so look for examples to the contrary to challenge your own beli…

It's not luck if you make consistent returns over 4 years. "gambling" is the term people use because they don't understand the stock market

>It's not luck if you make consistent returns over 4 years.

Sure, if your sampling was unbiased. But here, it's not - so that user might well have been lucky. How many people have failed to make those returns, or any kind of return?

There's very obvious evidence that somebody can outperform the market, even to a massive degree. From what I know, there's very little evidence that a particular person can deliberately outperform the market - and daytraders, especially, cannot do so consistently.

Re: Robinhood and How to Lose Money

#144

Post by AstralStorm »

mrep wrote: post #107
onion2k wrote: post #100

Earlier quoted context omitted.

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

The more interesting question is what will you buy for million dollars in old age.

Some common answers might be:

* healthcare, always expensive

* things for your kids, including education, housing, access to jobs

* random consumer spending including holidays or travel

* charity

Presuming you were able to actually afford saving $400/mo while living reasonably comfortably which is definitely not a given and not quite as common as expected by some.

And presuming you're not altogether unlucky in your strategy, which can happen.

You will have probably also accrued still useful assets to pass on or use. Or lost them.

Re: Robinhood and How to Lose Money

#145

Post by rchaud »

cs702 wrote: post #141

The main point of this article is that Robinhood has brought Silicon Valley-style maximization of user engagement to retail stock-market trading without regard for the psychological, social, and financial consequences to the people who use the service. The author claims that for Robinhood, "maximizing user engagement" translates into blindly optimizing for getting more and more individuals to trade more and more. Tho…

At this point, I'm inclined to think that the only benefit VC-funded companies provide to the consumer is by subsidizing the price of the service. Uber, WeWork, DoorDash etc are all piling up losses by undercutting competitors to gain market share. That cannot last. At some point, the other shoe will drop.

Be ready to jump ship if the benefits no longer exceed the costs (lock-in, bad business practices, sale of personal information), etc.

Re: Robinhood and How to Lose Money

#146

Post by vinay427 »

rchaud wrote: post #145
cs702 wrote: post #141

The main point of this article is that Robinhood has brought Silicon Valley-style maximization of user engagement to retail stock-market trading without regard for the psychological, social, and financial consequences to the people who use the service. The author claims that for Robinhood, "maximizing user engagement" translates into blindly optimizing for getting more and more individuals to trade more and more. Tho…

At this point, I'm inclined to think that the only benefit VC-funded companies provide to the consumer is by subsidizing the price of the service. Uber, WeWork, DoorDash etc are all piling up losses by undercutting competitors to gain market share. That cannot last. At some point, the other shoe will drop. Be ready to jump ship if the benefits no longer exceed the costs (lock-in, bad business practices, sale of perso…

I find this characterization somewhat amusing, in a positive way. This makes it sound like someone implemented (rather poorly) an ambitious wealth gap reduction plan that uses insufficient approximations and no government oversight, leaving a significant number of people behind.

Re: Robinhood and How to Lose Money

#147

Post by kiplkipl »

orojackson wrote: post #132
kiplkipl wrote: post #102

Earlier quoted context omitted.

500 companies in one country isn't diversified.

That's what ETFs like VXUS and IXUS are for. You get international exposure. VT is another good choice if you're lazy and just want to own a slice of the global stock market.

Sure, but he didn't say those, he said S&P 500. It seems like weird American exceptionalism that the internet repeatedly recommends only investing in one nation's index when that would be laughable if you heard a Japanese, Chinese, or German person saying to do the same with their national index.

Re: Robinhood and How to Lose Money

#148

Post by Viliam1234 »

WhompingWindows wrote: post #124
biql wrote: post #97

Earlier quoted context omitted.

Based on my limited experience, you enter during the bull market, make some easy wins, and start wanting to bet more and more because winning feels so easy. I could totally feel this process when I bought a few option calls that over a few months made 10x. That felt fantastic at first but shortly after I noticed that I started to blame myself for not taking more risk because on the hindsight, it felt so obvious that…

I felt this. I bought a well-known controversial EV stock quite low; my plan was to make at least 33% on it. After a year, I'd made 400%, but I was struggling to click the "Sell" button. Some greed surfaced from somewhere, and it took me a couple of days to cancel the greed and sell the stock, making 12X what I hoped to the year before. The stock has since gone up a lot more, but my dad told me: Buy low, and Sell too…

If I made 400% on something, I would probably sell half of it, and keep another half at least for a year. That way, both my safety and greed would be satisfied.

(But this is more about psychology than math. For some people this would be the worst option, because if the thing would lose value, they would blame themselves for not selling everything when they had the opportunity, and if it would gain even more value, they would blame themselves for not waiting with everything. So it would be lose/lose from their perspective.)

Re: Robinhood and How to Lose Money

#149

Post by hansvm »

timavr wrote: post #136

This is just nuts, people know zilch about risk management. It is just a wealth transfer from people with zero knowledge to professional traders and brokers. Paying of credit cards, maximising your tax return, investing in things you 100% understand, way easier ways to make money. People still might get lucky and make epic money, but it is in the same zip code as driving drunk and not getting into a crash.

> People still might get lucky and make epic money, but it is in the same zip code as driving drunk and not getting into a crash.

The rest of your post notwithstanding, this is a moderately common misconception. Most drunk driving does not result in crashes, and that's part of the danger -- after dozens of successful trips you might delude yourself into thinking you're somehow able to overcome the reduced reflexes and whatnot, but as soon as anything atypical hits the road (like a family crossing) you probably won't be able to respond adequately.

Re: Robinhood and How to Lose Money

#150

Post by KMag »

vmception wrote: post #33
JumpCrisscross wrote: post #21

Earlier quoted context omitted.

> I only want to spend a couple of hundred on long term options Former options market maker. And honest question. Why? Long-term options are tricky because theta and rho, the least intuitive components of the option pricing model, become significant as tenor increases. If you want to take a leveraged bet on the market, a margin account or leveraged ETF is safer.

the market underprices implied volatility on long term options, because it just doesn't know, which is an absolutely awesome.

What do you mean by underprice implied vol? I think what you mean is that vol is underpriced, not implied vol being underpriced. Implied vol is just a function of 4 factors known at at the time of the trade (underlyer spot price, option premium, option strike, time to expiry) and one unknown (risk-free interest rate over the lifetime of the option). Saying they've gotten implied volitility wrong implies they've mis-entimated the risk-free interest rate. I think instead you mean they under-estimate vol, not implied vol.
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