Robinhood Is Just A Few More Snap IPOs From Eradicating Inequality

Millennials have nothing to lose but their trading commissions.
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Millennials

Millennials

Every few months the financial press is obligated to roll out anothershortfeature on Robinhood, the app that, in the name of economic justice and wealth redistribution, makes day trading easier for millennials. This time around it was the Financial Times, whose Tom Braithwaite stopped by the startup's Palo Alto office to get their well-told story. It was Occupy Wall Street, recall, that inspired founder Baiju Bhatt to help strapped millennials become petit-capitalists. Robinhood charges no commissions and makes money mostly from selling premium accounts that allow margin trading. It's a unicorn.

There was one telling scene in the story, though:

As he struggles to find a can of soft drink in a mini fridge stuffed with beer, Mr Bhatt makes a passionate pitch — unusual among today’s Silicon Valley founders — for the benefits of going public. “I think all of these companies staying private for as long as they are is actually pretty bad. Companies should go public and they shouldn’t raise $7bn before they do,” he says. “I think it would be really cool.”

One could read this as a declaration of Robinhood's own ambition to go public. But more likely it's a simple statement of fact for the founders: Big flashy tech IPOs are great for Robinhood. Recall that when Snap IPO'd, millennials poured into Robinhood. Here's what Bhatt said back in March:

“Snap’s IPO revitalized investing among the younger generation...We also saw a surge in new accounts, with many new customers opening up their first brokerage account.”

Funny how that works. Thanks to millennials eagerly buying a bunch of ludicrously overhyped IPO shares from savvy Wall Street underwriters, we're one step closer to a fairer and more just world. Just to be sure, let's check how all those new accountholders have done since they downloaded Robinhood and loaded up on SNAP:

Screen Shot 2017-07-28 at 12.45.37 PM

To be sure, it's perfectly cool for Robinhood subsidize a free day trading platform with returns generated by charging margin investors. One could argue that the per-trade cost frictions that E*Trade or Schwab users face tamp down on ill-advised small-beans speculation of the sort that a free platform might encourage. But the actual effects remain to be seen. As a Robinhood spokesman told me earlier this year:

Re: the idea people are bad stock-pickers and prone to day-trading, we actually don't see that behavior. Many of our investors are buy and hold investors, creating mini-diversified portfolios overtime - though a fraction of our users are more active, experienced day-traders. In addition to all U.S. stocks, we also offer the entire suite of ETFs.

As co-founder Vlad Tenev told Business Insider recently, the lack of commissions encourages users to diversify into a bunch of stocks rather than pile into a few.

What's less defensible is the continued Occupy-style social-justice framing here. The problem isn't so much wanton speculation as the idea that leaping into the public offering of the app you use to send dick picks is somehow a financially prudent decision. If Robinhood's mission is just to make money offering cheap day trading to people who know the risks they're taking, fine. But that's not their ostensible mission. This is:

Our mission is to empower this new generation to take greater ownership in their financial future, which we believe can help shrink the gap between the "haves" and the "have nots" and lead to a healthier, more robust global economy.

It would be great to live in a world where we're just a few more Blue Aprons and Snaps away from generational wealth parity. But alas.

Free stock trading for millennials comes at a cost [FT]

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