“Charles, might you inform me about your newest ‘play’?”
That’s all it took to tick me off.
I didn’t have my morning espresso but, and I used to be already a bit cranky.
So, I went off on my colleague…
I advised him how I hate the phrase “play” when it refers to investing.
If you wish to know extra about my newest suggestion, no drawback.
I’m greater than glad to share it with you.
However it actually grinds my gears when individuals gamify investing.
That’s why it shouldn’t be a shock to you that I’ve by no means favored Robinhood…
Beginner Buyers
Robinhood has a buying and selling platform on a cool app that lets customers purchase shares, gold and cryptocurrencies.
The corporate was based a couple of decade in the past and doesn’t cost commissions.
In different phrases: Buying and selling is free.
And its advertising and marketing technique is targeted on millennials.
So, its easy-to-use app attracted tons of younger customers through the COVID-19 pandemic.
At one level, Robinhood had a confetti characteristic to have a good time trades — till regulators bought on its case.
It racked up 21 million energetic customers, and the sky appeared to be the restrict.
Robinhood was quickly hailed as a “disruptive innovator” that was going to alter the world.
And on the finish of July 2021, the corporate went public at $38 per share.
A number of days later, it greater than doubled!
Fairly quickly, I bought a couple of emails from subscribers asking if I used to be going to suggest the inventory.
My reply was agency: “NO.” Right here’s why…
No Play
Robinhood’s enterprise mannequin and gamification of investing was a giant crimson flag.
The consumer base was rising due to the lockdown and a hovering market.
With out these two situations, I couldn’t determine how they might proceed rising.
As well as, half of the corporate’s younger buyer base had no investing expertise.
Getting individuals with no investing background to commerce and take dangers is simply plain flawed.
You’ve gotta be nuts to suppose that you can construct a brokerage enterprise off of that consumer base.
The corporate was an accident ready to occur.
The truth is, right here’s what I mentioned again in March 2021, a couple of months earlier than the preliminary public providing (IPO)…
“I feel the corporate does a giant disservice to beginner traders and merchants.”
And since then, Robinhood’s income per consumer fell off a cliff.
Income per consumer plummeted as soon as the lockdown was over and the market fell.
Income per consumer is down from a peak of $137 to $56.
That’s not good for an organization that’s alleged to disrupt the monetary business.
The wind has come out of Robinhood’s sails because it continues to put off extra of its workers.
And Robinhood’s inventory is now buying and selling 76% off its excessive.
Whereas many traders bought excited concerning the firm’s story…
They forgot to look beneath the hood to take a look at its enterprise mannequin.
Within the Clouds
There was no method that Robinhood was price $30 billion at its IPO.
And it was pure fantasy to suppose it was price near $60 billion a couple of days later, both.
At $60 billion, Robinhood’s market cap was just a bit bit lower than brokerage agency Charles Schwab’s.
There have been even comparisons of Robinhood to Schwab.
However that’s like evaluating a Little League Baseball crew with the New York Mets as a result of they each play baseball.
That’s pure poppycock.
And to suppose … Schwab generates billions of {dollars} in revenue, whereas Robinhood isn’t worthwhile.
I ponder if those that purchased shares at $50 or $60 took a second to consider that.
As a result of on the finish of the day, a inventory is a chunk of a enterprise.
So, should you purchase corporations which might be extra story than substance, you run a giant danger of shedding your cash.
However should you purchase companies which might be extra substance than story, you may make cash and sleep higher at evening.
These are the form of corporations I like to recommend in Alpha Investor.
The truth is, I’ll be popping out with my newest suggestion to the portfolio quickly.
So, Alpha Buyers ought to keep watch over their inboxes for it.
And should you haven’t joined the household but, learn the way to change into a member proper right here.
With our technique, you don’t have to fret about shedding sleep — it doesn’t matter what the market does.
Regards,
Charles Mizrahi
Founder, Actual Discuss
