In late July, Robinhood Markets (Nasdaq: HOOD) went public.
Robinhood is a financial services platform that allows users to invest in stocks, exchange-traded funds, options, gold and cryptocurrencies.
And it was one of the most highly anticipated initial public offerings (IPOs) of 2021. Just a few days after its IPO, its stock surged more than 24%.
But I didn’t like Robinhood’s business model and told Alpha Investors so in March 2021:
I’ve never been a fan of Robinhood. In fact, I think the company does a big disservice to newbie investors and traders by making investing “fun”…
That’s a red flag because it gives way for people with no investing background to let their money fly out the window.
What really irked me were things such as the app’s confetti feature. It made investing seem like a game. I wasn’t the only one who didn’t like it. Regulators didn’t like it, either.
And for many everyday investors, making investing into a game leads to devastating results…
Half of the company’s young customer base has no investing experience. So, most Robinhood day traders lose money. Some have even lost over $700,000 or $800,000 in a matter of months.
It should come as no surprise that I wasn’t interested in buying the stock.
And now, the wind has been taken out of the company’s sails. As I write today, Robinhood’s stock is trading around $19 per share.
That’s a 50% decline from its IPO price — and nearly 78% lower than its intraday high of $85 in August.
(Click here to view larger image.)
But this doesn’t surprise me in the least…
Investing Is Not a Game
Robinhood’s business plan was all about turning investing into fun and games.
Investing is a lot of things, but one thing it is not is fun and games.
The Real Talk is that making money in the stock market is serious business.
Every time we buy a stock, we’re buying a piece of a business. And that requires research and analysis. The fun part is making money from our hard work … not trading stocks.
People who’ve bought hot IPO stocks like Robinhood have learned that the hard way.
As The Wall Street Journal reports…
Of the more than 380 companies that have launched IPOs in the U.S. this year… In total, nearly two-thirds of those companies are trading below their offer prices.
That’s because most of these businesses aren’t sound. For example, Robinhood has been plagued with problems from the start…
It’s seen everything from conflicts with regulators to drops in revenue and most recently, a data breach of user info involving 7 million customers.
And unlike the legendary heroic outlaw Robin Hood, Robinhood Markets makes its money off of unsuspecting first-time investors.
I can’t get behind a business model that attracts novices like that. I don’t want to be partners with businesses that conflict with my values and won’t benefit society.
When we buy shares, we get to pick and choose who we become “partners” with. The best thing you can do is buy shares in companies with values that let you sleep easy at night.
And those are the kind of companies I recommend in Alpha Investor. So stay tuned for more opportunities ahead.
Founder, Alpha Investor