by Ray Keating
The Keating Files – September 14, 2020
I had been thinking about the purchase of a few shares of stock in a well-known company that’s clearly undervalued in this pandemic economy. As I sat in a long line, not going anywhere, at a fast-food restaurant, I decided to make the purchase. It took me less than 30 seconds to buy the shares via the Robinhood app on my phone.
Ain’t technology great?
When it comes to making it easier and more affordable to invest for the average person, the logical answer should be an enthusiastic “yes.” But, of course, logic doesn’t always prevail.
On the logical side, more individuals becoming investors is a good thing for many reasons. For example, individuals are able to more easily build up their assets and savings for a wide array of purposes in life, from paying for college to retirement to passing on assets to children to making major purchases, and so on. (And yes, let’s offer the standard disclaimer: Of course, that requires individuals to invest responsibly.)
In addition, more people becoming part of what someone not that long ago called the “investor class” ranks as a plus in terms of better understanding how our free enterprise system works, and why investment matters in terms of providing liquid markets in which businesses can raise financial capital for growth, and people are incentivized to invest, including being able to move in and out of investments according to changing circumstances. Those changing scenarios can pertain to the investor herself, or to the company, industry and/or economy.
And while many Americans are investors through their 401ks or pensions, making one’s own investment decisions can have a greater impact than the more disconnected process of 401ks and pensions. Being an active investor encourages people to look at a host of undertakings in a different light, including how government taxes and regulations can impact businesses. Owning a few shares in a company can suddenly change one’s perspective on government supposedly having to do something about those presumably big bad corporations. Perhaps being an investor requires a more sober assessment of various crusades spouted off by assorted activists, from trade protectionism among populists to excessive environmental regulations on the Left.
These are all positive developments thanks to technology reducing the costs – Robinhood offers zero-fee trades – and increasing opportunities to invest.
At the same time, any endeavor in life is going to have some negatives or costs. And there always will be Luddites of various stripes and leanings who will gin up unwarranted and/or off-base worries about technological advancements.
So, we get treated to assorted reports raising questions based on anecdotes and speculation. There was a CNBC report warning that “critics say Robinhood gamifies investing,” with one financial planner declaring, “These are super dangerous.” That’s right not just dangerous, but “super dangerous.”
The New York Times chimed in with the standard story of grim tales based on interviews with nine current and former employees, plus “more than a dozen customers.” Oh yeah, Robinhood has more than 13 million accounts.
Even the normally sober folks at The Dispatch published a piece declaring, “The coronavirus pandemic also led to a temporary moratorium of professional sports, meaning those who previously spent their days sports betting or playing Texas Hold ‘em in their local casinos have flocked to day trading as an alternative form of gambling.” Whoa. Is there any basis for such a comparison? Well, no, not really.
Robinhood’s responses to these attacks have been solid. CNBC quoted Robinhood’s response: “We believe that broader participation in the markets is more democratic and can bring opportunities to many. Those who dismiss retail investors as ‘gamblers’ or ‘gamers’ perpetuate the myth that investing is only for the wealthy and highly educated.” And Robinhood was quoted by The Dispatch: “Those who dismiss retail investors as ‘gamblers’ perpetuate the myth that investing is only for the wealthy and highly educated. We built Robinhood to be a platform for customers to learn and to invest responsibly, and most of our customers use a buy and hold strategy with their investments.”
People have long made bad financial decisions, often with tragic results. And I certainly am not denying the often severe pain that can occur. Unfortunately, that will never change.
If one opens an investment account, whether with Robinhood or any other financial institution, doing your homework is required. That includes the benefits of having a diversified portfolio and purchasing, for example, mutual funds for the long run. And day trading is rarely a sound endeavor, while buy-and-hold makes sense. It’s also a good idea to only invest with funds that you can afford to lose. Such common-sense observations are ubiquitous for anyone willing to click or swipe online. Overwhelmingly, people heed such lessons, but some inevitably will not, again, no matter where the investment account happens to be housed.
In the end, comparing Robinhood’s services to gaming and gambling says more about the ignorance and bias of the people penning these various pieces, than it does about the realities of reducing the costs of and expanding opportunities for investing.
Indeed, the entrepreneurs who started Robinhood – Vladimir Tenev and Baiju Bhatt – should be applauded, not attacked, for making it easier and cheaper for the average person to invest.
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Worth noting…
Tune in to the episode of Ray Keating’s “Free Enterprise in Three Minutes Podcast” titled “What’s the Deal with the Stock Market?”
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Ray Keating is a columnist, novelist, economist, podcaster and entrepreneur. You can order his new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York from Amazon or signed books at RayKeatingOnline.com. His other recent nonfiction book is Free Trade Rocks! 10 Points on International Trade Everyone Should Know. The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?
Keating’s latest novel is The Traitor: A Pastor Stephen Grant Novel, which is the 12thbook in the series. There is a big sale on signed books and sets at https://raykeatingonline.com/t/book-of-the-month. Also, the best way to fully enjoy Ray Keating’s Pastor Stephen Grant thrillers and mysteries is to join the Pastor Stephen Grant Fellowship! For the BEST VALUE, consider the Book of the Month Club. Check it all out at https://www.patreon.com/pastorstephengrantfellowship
Also, tune in to Ray Keating’s podcasts – the PRESS CLUB C Podcast and the Free Enterprise in Three Minutes Podcast
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