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Rookie traders get hosed
Good morning, diligent students of the market. This is your Stock Market Rundown for August 4th, 2023. Thanks for joining me once again. Let’s dig in:
TODAY’S TOP STORY: TRADING NOOBS GET A REALITY CHECK 📈
The 2021 meme stock frenzy was a brief cultural moment of collective delusion. Kids who didn’t know a call option from a convertible bond were slinging shares of Gamestop and AMC based on Reddit posts and Twitter threads.
And the business that caught the biggest tailwind off this frenetic activity? Robinhood, a free stock trading app that became shorthand for dumb money, but still turned its founders into centimillionaires.
Founded in 2013 by a couple of Stanford math students, Robinhood famously doesn’t charge commissions. So (you may well ask), how do they make money?
Well, Robinhood gets compensated by partners for directing trades to specific intermediaries, which is called Payment For Order Flow, and without digging into the details, it’s a wee bit sketchy. Ever heard the saying “if you’re not paying, you’re the product”? Let’s move on.
With confetti animation splashing onscreen to celebrate trades, Robinhood made the stock market seem like a video game—but when naive traders blew up their margin accounts, the laughs turned to tears. Curmudgeonly billionaire investor Charlie Munger (Warren Buffett’s business partner) went so far as to call Robinhood “a gambling parlour masquerading as a respectable business.” C’mon Charlie, everybody loves Vegas!
Robinhood went public in July 2021, at a lofty $32 billion valuation.The victory lap was tarnished somewhat by regulatory authorities fining the company for “systemic supervisory failures”—a $70 million wrist-slap. Bygones.
Robinhood axed the confetti before its IPO, and appears to have settled down to become just as boring as any other brokerage app. It even recently posted its first-ever profitable quarter. I guess this is growing up.
SO WHAT ELSE IS GOING ON?
McKinsey thinks food service, office support, and other workers doing “repetitive tasks” will face automation of their jobs by AI. Future-proof yourself by getting a job an AI can’t do. I’m planning to become a hairdresser on an oil rig.
The SEC is prodding corporations to disclose more about cybersecurity breaches. Pro tip: most such lapses are caused not by Hollywood-style “hacking the mainframe”, but by Derek in HR getting duped by a phishing email. Smarten up, Derek.
With the success of the Barbie movie, Mattel is eyeing more toy-based films, including a movie based on the Magic 8 Ball. How about a Hungry Hungry Hippos horror movie, or a romantic comedy based on Connect 4?
Whole Foods is allowing shoppers to pay with a palm print. So if they get hacked, the biometric data you used to buy gluten-free kale chips is probably going to end up on the Estonian dark web.
That’s a wrap on the week. Have yourself a delightful weekend, don’t do anything I wouldn’t do, and let’s circle back first thing Monday. Yours in capitalism, The Axe