The 'Robinhood' effect: how the under-40 set discovered daytrading

Barron’s Deputy Editor Ben Levisohn discusses the surge in retail trading, particularly amongst the under 40-set, in a post-pandemic world.

Video Transcript

MYLES UDLAND: Well, you've heard us talk about it for a number of weeks now, and that is the rise of the Robinhood trader, kind of I guess they all are bucketed as young millennial men sitting at home with nothing to do, playing around on their phones. But you see data from firms like Charles Schwab, E-Trade, Interactive Brokers, the number of retail accounts has been soaring in the last couple of months as people have been certainly playing we haven't seen in quite some time.

And for more on all of this, we are joined by Ben Levisohn. He is the Deputy Editor over at Barron's. And Ben, I know you guys have been covering this extensively, as-- as many of us here in financial media have.

And I guess just from your kind of top-level view here, and we'll get into some specifics, when you think about the role the retail trader has played in the market, personally, I'm fairly convinced that it matters. But as you know, strategists seem very much divided on how they feel about kind of admitting that maybe it's just some guys pushing around stocks. But it does seem like there's something to it.

BEN LEVISOHN: Yeah, I mean, I've come down on the other side of that. Largely-- so I used to do this a long time ago during the dot-com boom. And you know, there's no doubt that people are out there, and they're trading, and it's probably because they used to-- they used to gamble. They used to have sports to do things with. And now that's gone, and so they go out to the stock market.

But you look at what-- basically the trading patterns and things like that, and most of it fits what you would expect to see from the stock market at this point in time with or without retail traders involved. And just from experience, it's really hard for even a lot of traders chasing the same stock to push it around. It's still going to be done by the big institutions out there.

Especially nowadays with algorithms, those things are pushing stocks around even more. So I think with the retail traders, they're-- they're new to this. They might exaggerate trends. And they're certainly a great story, but I'm not sure that they're having as big an impact as many of us in the media would like them to have.

DAN ROBERTS: Ben, Dan Roberts here.

BEN LEVISOHN: Hi, Dan.

DAN ROBERTS: To stick with Robinhood for a moment, I'd be curious your take. We have discussed the various dangers and problems with the app. I mean, forget the effect we've seen with things like Hertz and other names more recently. But just in general-- I mean, I remember when Robinhood first launched.

Back then I was with "Fortune," and I wrote about how there was a fear that now that you've made stock trading as simple as swiping on Tinder, you'd have, you know, young people in college who really know nothing about the stock market losing their shirts, potentially. And of course, I believe the "Times" or someone else recently did a much more serious feature on one young trader who had a sort of tragic result because of losing a lot of money on Robinhood.

And maybe that was just one example. But I would add in the fact that a number of times in the last few months it has had major, major outages that have caused people to be furious. And yet it kind of seems like the dangers for inexperienced people and the occasional outages of the app, no one really cares that much.

BEN LEVISOHN: I agree with that. Trading is fun. And with small amounts of money, it might not be that big a deal. But it's also gets very easy to treat it almost like you would at the-- gambling in Vegas or something like that, where you just keep betting and hoping that your luck changes, and your luck doesn't change.

The most important thing for anybody getting into trading is to have a system and have rules that they stick to. You don't-- you're not going to be right all the time. I mean, the best traders are right maybe a little bit over half the time. And so the way that they win is by cutting their losses.

And so knowing that, you know, you get out when things start going against you, you can always get back in. And there are reasons that we have these cliches on Wall Street, like the trend is your friend, and you don't fight that. And if things start going against you, you can't sit there and keep doing things.

You have to note also to get out. There is a time to take profits. And we've been seeing that with a lot of these stocks even now, where, you know, yesterday with Tesla up 14%, then finishing down 2%. They're incredible moves, but there are also lots of-- they're great moves to trade, because you can catch the upside and you can catch the downside, but you have to be willing to actually do the trades.

MELODY HAHM: And then, Ben, of course, the story about the story, right? When you look at Robin as a fintech company, as I understand it, yesterday they closed their last round, bringing the valuation to $8.6 billion. Do you imagine that an exodus on the near horizon? Do we think-- I'm assuming that many brokers have been kind of circling the company as a potential acquisition target, but perhaps now the valuation is too lofty.

BEN LEVISOHN: I would worry-- so right now, I would worry mainly about the market going quiet for them, because what you need to be a day trader is volatility. It's what made day trading. It's more NASDAQ traders stopped trading after the 2000 bust, not because the market went down, but just the volatility went away after a while. And you need to have volatility to trade. Otherwise, you just sit there, and you don't do anything. And so that's the kind of thing that really could be problematic.

But I think also, on the other side, if you really are a serious trader, Robinhood is not the place that you want to go. There are much better places to go do that that have much better tools to make you successful at this because that's the key. I mean, if you-- you don't want to treat it as a game, or you can treat it as a game where you lose a few dollars here and make a few dollars there. But if you want to do it seriously, you really do have to figure out what works for you, and you have to have the tools to do that so that you can execute efficiently and quickly and not have to worry about things like your system going down or not having the right charts.

MYLES UDLAND: Well, and so then, Ben, let's finish, then, thinking more broadly maybe about where the asset management world stands. We've seen a lot of consolidation. Last year, there was a huge rush to consolidate very quickly. I think these firms are happy to see individuals come back into the market.

But as you know well, it has been a push towards the bigger players, passive investing. Fees are not really a part of the conversation anymore. Do you think that the major asset managers welcome these trends that we've seen in this COVID period? And is this-- like, are they looking at millennials and saying, we might have a durable base of active traders here that we thought were sort of gone forever after the tech bubble?

BEN LEVISOHN: I think they probably hope there is. I think I'd be a little skeptical of it. Though you could see a world where-- it has been all index driven for so long, you could see a world where the indexes stop working, and it does become much more about stock picking, and people, not just millennials, but just investors generally start getting interested in stocks again, rather than just loading up on their indexes and watching them trade higher.

So I think it's welcome. I think having people who just started trading use this as an opportunity to learn about the markets, learn how they work, think about their investments, that's great too, and it's going to make them better at investing as they get older. But I don't know if we're going to be able to see a trend of day trading that just all of a sudden lifts asset manager's profits in a way that's meaningful.

MYLES UDLAND: All right, Ben Levisohn, the Deputy Editor over at Barron's. Ben, thanks for joining the program. Good to talk with you. Talk soon.

BEN LEVISOHN: Thanks so much.