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Robinhood and How to Lose Money

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Re: Robinhood and How to Lose Money

#81

Post by WalterBright »

Melting_Harps wrote: post #61
WalterBright wrote: post #38

Earlier quoted context omitted.

> Steady investment will never give you that. Sure it does. I've seen lower middle class people become millionaires that way. Of course, one needs the discipline to not succumb to spending it on a car/house/divorce, and the intestinal fortitude to not panic sell when the market tanks.

> Sure it does. I've seen lower middle class people become millionaires that way. Of course, one needs the discipline to not succumb to spending it on a car/house/divorce, and the intestinal fortitude to not panic sell when the market tanks. I think he was referring to the adrenaline rush, not the potential to make life changing amounts of money playing the long game, which clearly doesn't yield the same 'rush' he wa…

I don't get a rush from gambling, because I know the math and know I am doomed to lose.

Stocks, on the other hand, have an upward bias. Of course, there could be events like losing a war where your portfolio will be vaporized, but in such cases you're going to lose anyway, so there's no point in worrying about such catastrophes.

Re: Robinhood and How to Lose Money

#82

Post by mav3rick »

kjksf wrote: post #45
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.

Here's the appeal: I made 4x return in last 3 years "gambling" on stocks. That's far in excess of 8% return from "just passively investing for the long term". BTW: I gambled on IBKR, not RobinHood (I have RH account but don't use it). I just don't get why RobinHood is so vilified for the crime of making a fast, usable app. I use IBKR but their website is just bad. A security theater that makes logging in slow. Someti…

Some people always win at the casino. Keep it long enough and we"ll see if you have happy results.

Re: Robinhood and How to Lose Money

#83

Post by xondono »

I’ve started to learn about options, but for now I’m staying with long term stock investment.

Maybe I’m not understanding the language, but I thought RH and eToro and the like made money through enabling high frequency trading against their customers. My guess/intuition is that this would increase volatility but reduce the expected returns of their users when compared to trading stocks through a broker. Am I terribly lost here?

Re: Robinhood and How to Lose Money

#84

Post by WalterBright »

pjc50 wrote: post #68
WalterBright wrote: post #38

Earlier quoted context omitted.

> Steady investment will never give you that. Sure it does. I've seen lower middle class people become millionaires that way. Of course, one needs the discipline to not succumb to spending it on a car/house/divorce, and the intestinal fortitude to not panic sell when the market tanks.

> needs the discipline to not succumb to spending it on a car/house/divorce Apart from the 2008 boom/crash, owning a house has been a great way for the middle class to become asset millionaires. I knew someone in London who was routinely out-earned by the asset appreciation on their own house. Besides, inflation has rather moved the bar for "millionaire" to every middle class couple with a house and two retirement fu…

> inflation

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

Re: Robinhood and How to Lose Money

#85

Post by mrep »

quickthrower2 wrote: post #37
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…

Having not used it, what is special about Robinhood? Online Trading platforms have been around since the 90s. Maybe earlier, but I was seeing them then. There wasn't much friction back then, other than needing to be physically located at home to have an internet connection (no wifi or mobile).

They were the first to offer no commission trades. That's why I have an account. Now that vanguard offers that for equities and they default to putting your money in a money market account where you get the interest, I plan to only use vanguard.

The Robinhood mobile app though is way better than vanguards. It looks like a native app and even updates prices every few seconds where as the vanguard mobile app is just a mobile website wrapper (or at least looks like it).

Re: Robinhood and How to Lose Money

#86

Post by quickthrower2 »

mrep wrote: post #85
quickthrower2 wrote: post #37

Earlier quoted context omitted.

Having not used it, what is special about Robinhood? Online Trading platforms have been around since the 90s. Maybe earlier, but I was seeing them then. There wasn't much friction back then, other than needing to be physically located at home to have an internet connection (no wifi or mobile).

They were the first to offer no commission trades. That's why I have an account. Now that vanguard offers that for equities and they default to putting your money in a money market account where you get the interest, I plan to only use vanguard. The Robinhood mobile app though is way better than vanguards. It looks like a native app and even updates prices every few seconds where as the vanguard mobile app is just a…

Oh right, but you could do "spread betting" (similar to CFDs) back in the early 2000's in the UK. Commission free, but you pay the spread and some interest on borrowed money. I think they structured it as betting rather than investing so that customers would pay no tax on winnings. (Also not many people won!)

Re: Robinhood and How to Lose Money

#87

Post by seanhunter »

d_silin wrote: post #35
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…

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 market or directly without touching the market as part of executing someone else's trade later. This is more efficient for everyone as it means you don't pay the exchange fees for those trades you can "cross off" against a colleague or another client and therefore can offer a slightly better price to the end client. It also allows traders to manage the market impact of big orders more effectively, allowing large trades to be completed without moving the market as much.

If you're large enough, your client base represents the market generally. That means your client base by definition doesn't outperform the market (ie has zero alpha). So that means that facilitating their trading earns you the commission and the trades you have to unwind have net zero alpha. This is not entirely true because it ignores some important effects around how commissions work etc (which end up meaning that broker/dealers are structurally long the market in general) but is not false enough to matter for the purposes of this discussion.

Imagine you had one client who knew the future (ie every trade they made would make them money). By definition taking the other side of that trade would therefore lose you money. Their orderflow would be "toxic" - by trading with them you would always lose money.

When someone says that orderflow is "informed" what they mean (usually) is that the people making the trades have more information than the rest of the market and therefore will trade when beneficial to them which is likely to be net/net not beneficial to you (if as a broker you're on the other side of the trade).

Now, whether or not robinhood order flow is on the whole informed or toxic is another question. Personally I would be surprised if that turns out to be true but I could be wrong.

Re: Robinhood and How to Lose Money

#88

Post by mrep »

jeffrallen wrote: post #53

Here's a rule of thumb that has served me well: If you're not paying someone to manage your portfolio, you're paying too much. But: it has only served me well because the person I pay is trustworthy beyond reproach, and has earned that trust from my family over decades. This is, unfortunately, not a scalable solution.

What fees do they charge and what rate of return have you gotten?

Your manager may be lucky or exceptional but most people on average will get better returns avoiding those fees and just buying index funds.

Re: Robinhood and How to Lose Money

#89

Post by Cthulhu_ »

kjksf wrote: post #45
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.

Here's the appeal: I made 4x return in last 3 years "gambling" on stocks. That's far in excess of 8% return from "just passively investing for the long term". BTW: I gambled on IBKR, not RobinHood (I have RH account but don't use it). I just don't get why RobinHood is so vilified for the crime of making a fast, usable app. I use IBKR but their website is just bad. A security theater that makes logging in slow. Someti…

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 beliefs.

Re: Robinhood and How to Lose Money

#90

Post by Cthulhu_ »

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.

It's not, however, you need access to starting capital and patience. Wealth begets wealth with this strategy, but you'll only become a millionaire using this tactic if you can put in a significant amount.

The S&P tripled in value since 2010, so you would've had to invest $333.000 at that time and cash out now to become a millionaire. But few people have that. That's a 1%, I already made my fortune / I have rich parents privilege.

Sure, ANY amount you put in there would've gotten tripled, but turning $1000 into $3000 isn't going to make that big a difference.

And if you have hundreds of thousands lying around, I'd argue that buying a house would be more beneficial for your well-being in the short term.

Disclaimer: I've invested some money in the past, both low-risk long-term stuff, index funds, and 'play money' into meme funds like Apple and Tesla. I think at most I've doubled what I put in? Didn't lose money (even with the rona), that's for sure.

I try to not go "I should've done x" too much though, like "I shouldn't have sold my handful of $250 Tesla stocks when I did".

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