Robinhood traders nailed the market bottom, debunking theory retail investors are the dumb money

When Robinhood, an exchange focused on discount trading, became publicly available about five years ago, it seemed like a joke. Investors could post their own stock trades in a browser-based interface. Big brokerage firms, understandably, didn’t want to deal with the heavy-handed shift to such a system and Robinhood shut down many of its more popular offerings — except, ironically, for a major new service called Robinhood Stock, which allowed people to trade stocks for a fee.

Robinhood was headed by a 27-year-old Harvard grad named Zevin Zeldin, who had played tennis with a bunch of Silicon Valley venture capitalists and startups, including Uber and Pinterest. According to a recent profile in The New Yorker, Zeldin was essentially mentored by Sean Parker, the co-founder of Napster, who he had known as a competitor. Parker, who is now chairman of Spotify, ended up becoming Robinhood’s financial adviser, and he has continued as the company’s public face.

To a considerable extent, Robinhood has challenged the conventional wisdom about the value of self-managed retail investors — or so it had been thought. In the mid-2000s, the ranks of stockbrokers shrank significantly, largely due to a case of what’s known as “hedge-fund locusts,” tech startups and financial pros who cut their teeth in the equity business, but then went on to do well working for hedge funds. The result was that the retail investor, who historically served as the so-called “mother lode,” was largely abandoned and many financial scandals were swept under the rug. But Robinhood was seen as offering a rational alternative to Wall Street.

Related posts

Leave a Comment