robinhood mobile investors

If you’ve listened in to some of my interviews or online presentations since the start of the pandemic, you may have heard me discuss Robinhood, the no-commission trading app favored by millennials. According to the company, the median age of users is 31. Many are first-time investors.

In the first quarter, the startup reported that some 2 million new accounts were opened, which was more than Schwab, TD Ameritrade and E*Trade combined.

For some investing veterans, the narrative has been that Robinhooders are clueless kids living in their parents’ basements, whose haphazard day-trading has destabilized stock prices. They took their $1,200 pandemic relief checks (which contributed to record disposable income growth in April) and loaded up on tech stocks, making markets frothy, some might say.

record disposable income growth supported tech stock rally
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I won’t make the case that there’s no truth to this characterization. Tech stocks are indeed among the biggest movers so far this year, with electric vehicle (EV) maker Tesla and teleconferencing app Zoom on top. Not only has the rally made Tesla CEO Elon Musk $41.2 billion richer this year, but market caps of the “Big 5” tech firms (Apple, Amazon, Microsoft, Google and Facebook) now account for more than 21 percent of the total market cap of the S&P Composite 1500.

tech companies on top in 2020 so far like zoom, tesla and netflix
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A recent Bank of America survey, in fact, found that three quarters of fund managers believe tech stocks are the “most crowded” trade in history. As if to underline this belief, as many as 40,000 Robinhood accounts added shares of Tesla during a single four-hour period on Monday, according to Bloomberg. (According to third-party Robintrack.net, which compiles trading activity data on Robinhood, Tesla was the second-most popular stock of the past week, following biotech firm Moderna, which released promising results of an experimental coronavirus vaccine this week.)

But I think it’s unfair to lump all Robinhood traders in the same basket.

Besides such criticisms sounding “elitist,” it just isn’t possible for Robinhooders’ trading activity to have such an enormous impart on the market. According to research firm Alphacution, the average Robinhood account is $4,800, making the combined value of all accounts trading on the app around $48 billion. Says Nir Kaissar, founder of asset management firm Unison Advisors, that sum is “a tiny fraction of the roughly $11 trillion in market value added to U.S. stocks since the market bottomed on March 23.”