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Is Robinhood’s Disruption a Good Thing?

Is Robinhood’s Disruption a Good Thing?
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Is Robinhood’s Disruption a Good Thing?

Is Robinhood’s Disruption a Good Thing?

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Robinhood has made stock trading fun, cheap, and appealing to young people who aren’t wealthy – not the crowd the financial industry typically caters to.

But the app also has a history of serious errors, and it may not be good for people’s wallets if investing feels like a game.

Ahead of Robinhood’s initial (highly unusual) public offering scheduled for this week, my colleague Erin Griffith told me about the ups and downs of the app and how the company fits into the financial technology.

Shira: Let’s start by explaining why Robinhood is getting so much attention.

Erine: Robinhood respected the Silicon Valley trope by disrupting what came before it. Many start-ups are aiming for this, but few have succeeded. The company has made stock trading as easy as playing Candy Crush. This made trading free and got a lot of young people to invest in stocks. This has forced other online brokers like Charles Schwab, Fidelity, and E-Trade to change more than they have in years.

But in the same way that people discuss the compromises of companies like Google and Facebook, people also point out that Robinhood has created dangerous drawbacks.

What are these disadvantages?

Robinhood may be more like users at a video game or casino than an investment account, which can sometimes force inexperienced investors to take big risks, especially when doing some type of trading that involves borrowing. . Investment managers Warren Buffett and Charlie Munger recently discussed Robinhood, with Munger calling it “under contempt” and “a shady and unsavory deal”.

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Robinhood also makes more money when its users trade more, but plenty of research has shown that such behavior doesn’t generate the best ROIs. (The company’s financial records indicate that a “vast majority” of its clients do not meet the definition of “day traders” who do a lot of quick trades.)

Professional investors can be reckless too, and what they do is sometimes indistinguishable from the game. Is Robinhood’s review fair an elitist attitude that most people can’t be trusted to invest their own money?

This is what Robinhood believes, as evidenced by a provocative letter the company founder wrote to potential IPO investors. But people who follow the company have also questioned whether Robinhood’s zeal for growth and disruption of the system has led to a series of serious mistakes.

What types of errors?

The app crashed at critical times. He recently paid a record amount to the self-regulatory body of the securities industry for this and other mistakes, including not doing enough to weed out clients who were not suited to a high type of trading. risk.

Last year, a young man committed suicide after a misunderstanding that led him to believe he was in the Robinhood trades more than $ 700,000 hole, and he was unable to join the company to fix the problem. A traditional broker might not have authorized this type of investment without advice, or it might have been easier for a client to find help.

You wrote that we are in a golden age for new types of financial companies including Robinhood, the Stripe payments start-up, and semi-automated financial advisors. What is going on?

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A lot of people wanted something other than the big, traditional financial institutions, but they didn’t have a lot of good or reliable alternatives. When Simple, one of the first mobile banking companies, collapsed all the time, the attitude almost a decade ago was this: Here’s what happens when your bank is just an application.

Fast forward a few years and now, the technological building blocks for new financial companies have grown stronger, and confidence in them is growing among the public and regulators. It’s good for people to have more choices when it comes to banking and finance, but again, there are tradeoffs to be made.

A number of these businesses have faced repeated outages, frozen accounts, hacks and other major issues. Conventional financial institutions have many problems, but they are also not likely to deprive you of your money without recourse.


  • Words fail to capture how rich these companies are. The combined benefits of Apple, Microsoft and Google for three months were four times Walmart’s profits for a whole year. Yes, they are rich.

  • Children use the Internet. How do you keep them safe? Facebook’s Instagram introduced new measures to prevent teens from interacting with adults in the app, and it won’t allow advertising targeted to children’s interests or online activity, my colleague Erin reported. Woo. But as the company touted its new safeguards, the Wall Street Journal found automated Instagram recommendations of ugly sexualized hashtags and comments about children.

  • Listen, we NEED brainless TV: The HBO Max streaming video app has been problematic, especially on the Roku streaming gadget for TVs. Bloomberg News spoke to frustrated customers, some of whom left 37 pages of HBO app blame or workarounds on Roku’s website. (The root cause of all of this is a streaming TV business model that has reproduced all of the old TV habits.)

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You have to watch TikTok star James “Bear” Bailey enchant people in a convenience store by singing the R&B song “All My Life”. (Bailey regularly posts videos of himself singing at a gas station near his home.)


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