Recently, Robinhood (symbol HOOD) launched its IPO. For investors who buy exchange-traded funds tracking the S&P 500 and who invest like “watching paint dry or grass grow”, as we all should, Robinhood as a platform offers no advantages over using any of the other online broker such as TD Ameritrade or Charles Schwab.
The Robinhood platform has grown quickly. Why?
Its success results from good marketing, a user-friendly interface and the “gamification” of trading. It did the right things at the right time as many bored, stay-at-home investors found themselves with extra time and extra cash from the government stimulus.
Is Robinhood a good investment?
Several hundred IPOs are launched every year. Almost not a single one has ever had a loss in its first week.
Three years after its initial launch, almost not a single one has had positive returns.
Based on these facts, investors seeking excitement for their “fun” portfolio could:
1.) Buy an IPO and sell it a few days later
or
2.) Sell the security short some three years after its launch.
Concerning 1.), the record shows that about 1% of day traders make about the minimum wage. About 1%!
Concerning 2.), the potential losses are unlimited.
The Monday Morning Program recommends against either of these investment approaches for core portfolios.
As we frequently state, historically, 1.) over the long term, 2.) properly selected US market index exchange-traded funds, 3.) held in tax-advantaged accounts, 4.) in an appropriate asset allocation, have been the investor’s best way for growing savings and are likely to remain so for many years.
Ignoring any one or more of these four points could lead to exciting returns. However, it is much more likely to lead to under-performance.
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