From the early days of our childhood, all of us have heard the story of the infamous robin hood, a hero for the poor and demon for the rich. The folk tale describes him to be a thief of sorts but a selfless one, taking money from the greedy rich and giving it to the helpless poor. However, a lot has changed since the inception of RobinHood, the application that treats the popular act of trading as some sort of game guaranteeing returns with its infamous slogans and flashy gimmicks. This sort of irrational exuberance that RobinHood induces can be seen in several cases and eventually, we can start to see a pattern in the stocks that seemed to be the favorites of the American youth that chose to invest their life savings into and hence inflated the value of beyond comparison.
Case A: Tesla Motors
The world-renowned electric car manufacturer has seemed to have appealed to the majority of the American youth as the brand image is synthesized over one man only: Elon Musk. His intellectual yet immature nature lures in the youth especially with his obsession to induce humor into most of his products. He is known to be the modern-day green inventor with his missions at SpaceX, where he promises to send most of the human population to the Red Planet extremely soon, and his work with both the solar city, a project promoting the utilization of solar panels across the state of California, and his drive to produce cars that do not release tonnes of carbon dioxide every year. Nevertheless, Elon Musk has certainly made the brand image of Tesla extremely appealing to the youth through several mechanisms including his vision to make a Model S, Model E, Model X, and Model Y(to spell out SEXY) and he has also committed himself to constantly fulfilling the customer even post the purchase of the car by updating its software based on the season and allowing a level of customization unheard of in the motor vehicle industry. The man has curated reins of control over the youth that has to lead them to overinvest in the share price of Tesla. Well, this has only recently been possible with the inception of RobinHood that shows them unworldly figures as their return on investment making greedy and money-hungry young adults pounce on the opportunity to make a few thousand dollars simply by investing in a stock. Now if millions of the youth invest in one single stock, its value significantly appreciates leading them to believe that if they keep investing they will keep earning more money, creating a vicious cycle wherein they place all their money into the stock; this creates a deadly bubble that is approaching close to its burst. RobinHood along with Musk's extravagant identity have inflated the value of the Tesla share by allowing it to grow over 266% within a single year!
Case B: Signal
If you are not familiar with this particular company, do not be startled. This company is a newly listed firm whose major product is an application that ensures safe and encrypted communication to prevent the interception of any 3rd party. Its secure servers utilize an end to end encryption that secures your chat to an extent once again unheard of in the technological world. Well, Mr. Musk comes in once again by using his power over the youth to influence them with a single tweet "Use Signal" that not only exponentially increased the number of users of the app overnight but also caused its share price to skyrocket over 11,000%! Now that may seem close to impossible but with a population highly addicted to investing in RobinHood, whose schemes allow users to invest at any given point of the day with the click of a single button. RobinHood has once again lead to the rise of another market bubble wherein investors across the United States were freely permitted to invest in stocks like some sort of game.
The various gimmicks upon the application where it urges its users to "invest like Warren Buffet" influence them to bite off more than they can chew. The simple fact is that they are taking on more and more liabilities whereas they cannot account for them whilst investors like warren buffet can. However, their major marketing technique still remains to invest freely. The app is free on the app store and does not even charge the usual fee for its services. Instead, they make money by purchasing your shares from a third party instead of the actual stock exchange. They put up your investment and the investment of every other investor upon this market filled with firms that sell stocks at a few cents cheaper to RobinHood. Now, these firms bid for the chance to execute the trade as if they are able to do so, they make a large profit. So RobinHood's algorithm purchases the stocks from the cheapest seller and makes a few cents itself but boasts a zero commission trading scheme. While a few cents may not seem so much, the app executes millions of trades a day, generating high revenue, all while blatantly lying about its revenue stream.
Recently, however, the SEC has placed a charge of 65 million US dollars upon the firm for firstly misleading its customers about its revenue streams and secondly not keeping up with its responsibility to best execute the trades of the customers. This charge was fined on the 17th of December 2020 but still, RobinHood prevails as the creator of market bubbles and has lead to several of the youth losing most of their life savings as they irrationally purchase and sell stocks without any financial advice except that of an application that urges them to execute every single trade they think of making.
If you have any questions or queries, feel free to reach out to me in the comments below!