The Adventures of Robinhood
And the every-day investor
This week was dominated by conversations on the every-day investor. It’s no surprise that Robinhood cropped up a lot among various newsletters.
Outside of investing, I’ve filled in the gaps with a deep dive by Packy McCormick on a growing no-code startup and Erik Torenberg’s thoughts on the marketplace of ideas.
Does our economy still know how to function properly?
The Pomp Letter, by Anthony Pompliano
For the last 7 days in a row the S&P 500 has hit a new all-time high. The Nasdaq also lies at an all-time high. Are we not still in the middle of dealing with pandemic-related consequences? Commodity prices are rising with such speed that home builders are stopping in their tracks, waiting for more stable forecasting of their costs.
Another big increase: worldwide food prices, affected by a global pandemic and the steady reopening of the world. The US is not exempt from this. Supermarkets are stocking like crazy before prices surge to possibly the highest in recent memory. The US food supply chain is seriously struggling. A direct opposite of the hoarding going on at this time last year.
“Grocery stores are acting like hedge funds through their speculation on future food prices... the current economy is so out of whack that grocery stores are speculating.”
Consumers are also speculating. Just look at Robinhood:
Approx 6% of its total revenue comes from users trading Dogecoin.
Approx 37% of its total revenue come from users trading options
More than 6.5% of its total revenue from providing margin loans
These numbers certainly suggest speculation and while it is not always bad, in the current climate where our economy is incredibly vulnerable, there are some serious risks being taken.
Advice from Pomp: “get educated about how the economy works and position yourself to benefit from the macro economic forces...education is the great equalizer in uncertain times.”
A world without coding?
The next big thing in AI and ML is low-code/no-code, and certain savvy thinkers are already harnessing this to provide analysts and ops employees access to advanced techniques traditionally reserved for data scientists.
Enter Unit21.
Last week they announced a $34M Series B at a $300M valuation led by Tiger Global. On the surface they offer no-code/low-code ways to fight financial fraud but what they are really building is a flagging and reviewing engine empowering anyone to run complex processes on large datasets.
Some interesting takeaways:
Aside from having product-market fit, Unit21 also has founder-market fit. The obsession, back-story, personality and experience of founders Trisha and Clarence is geared towards its mission.
After a mere 20-day prototype building marathon, eBay recognized their potential. Unit21 took a completely new approach to data and fraud, and revealed that what they were building applies to much more than just the financial industry.
“You can’t build a platform by setting out to build a platform.”
Their strategic challenge going forward: Building a generalized product that feels localized to individual industries. They need to deliver an off-the-shelf product that’s highly customizable yet not overwhelming to non-technical users.
The marketplace of ideas is not all it's cracked up to be
The marketplace of ideas says that “nobody gets special authority and nobody has final say.”
The marketplace of ideas is the very noble ‘everyone is in this together’ route. It’s all about decentralization of power. But take even your most democratic group of friends, there’s always one natural leader, always one person who ends up calling the shots. It’s nice to dream, but we are human after all. “The powerless ask for equality, the powerful try to censor completely.”
The media industry, which introduces ideas to the masses, has very little differentiation between companies. A successful and well-oiled marketplace should have differentiated products. Marc Andreessen rightly pointed out that “civilizational progress happens not by top down unanimity and ideological instruction, but by debate and dispute.” This is not happening in the media industry.
It’s all too common for the elites to set policy while finding themselves far far away from any possible consequences. The marketplace of ideas assumes the best idea will win. History shows this to be false. Humans have often believed, and still do believe, in mass delusions. As long as you are incentivized to believe, any evidence against it will be ignored.
Despite all this cynicism, Erik does believe we should strive for the marketplace of ideas, there’s just no guarantee the truth will win simply because it’s true. Energy must be placed into discovering truth and spreading it.
Trouble in the woods?
Robin Hood worked to steal from the wealthy and enrich the poor. The investing app plays to this concept, yet there is a different story emerging. Its core revenue strategy is winning customers and then converting them into riskier asset classes — namely crypto and options.
“Robinhood extracted 9.5% of the value of its customers’ option portfolio for itself in the first quarter.”
Over half of Robinhood’s investors are first-timers (using an easy referral system allowing newbies to onboard quickly with a monetary reward to get them to make their first trade). This poses challenges for the company since it is incentivized to push them towards riskier asset classes.
Robinhood is now changing the app to be less gamified, and marketing it as a retirement fund rather than a short-term gambling tool. Robinhood has had to adapt to the consequences of hyping themselves up as a place for newbie traders who got millions their first brokerage accounts. It’s time for them to refine their messaging and customer servicing.
Farmer by day, investor by night
Digital Native, by Rex Woodbury
The sad news: income inequality in the US is at its highest level ever recorded.
The good news: there is a shift happening in the investment scene which has the potential to positively impact this.
Crypto went mainstream (14% of Americans own crypto), and crypto helps you think like an investor.
New technology is making investing easier. Thanks to Robinhood, no-fee trading is becoming a new norm.
The youth is rising up! They are sick and tired of old institutions and centralized power. In turn, they are becoming more thrifty and are charging full-speed ahead towards their own chosen destiny. The investing phenomenon is seeping into our education and the future of work. Even social platforms are full of every-day investing “coaches.”
3 trendy ways to invest:
Invest in companies. In the past, you’d need a hefty income of $200K for two consecutive years (or a net worth of $1M) to angel invest. The criteria has loosened, asking simply for “financial sophistication and understanding of the private markets.”
Gen Z businesses are leveraging this. They want their users to have a seat at the table. A crazy new startup called Stonks is livestreaming entrepreneur pitches and allowing viewers to invest.
Invest in events. Financialization of almost anything is altering the meaning of investing. Kalshi allows you to invest in (almost) everything. Risk-reward thinking is becoming mainstream, and everyday people are being trained to think like investors.
Invest in People. In 2020 we saw Rueben Bramanthan tokenize his time and Alex Masmej tokenize himself. We’re seeing a rise in human to human investing. Creative Juice allows creators to invest in each other and earn a share of future earnings. We’ll see much more emerge here in 2021 and beyond.
Extra reading:
Our data ecosystem is changing and our privacy along with it (The Pull Request by Antonio García Martínez)
Lo-fi music is booming, supporting black TikTokers, and creating memorable moments (Trapital by Dan Runcie)
Leveraging your brand voice and differentiating yourself with Steph Smith (Personal Brand Brief by Joel Hansen)
Are you still networking? Are lithium-ion batteries sustainable? And what’s going on with decarbonisation? (Exponential View by Azeem Azhar)
“There are no comparables in a category of one.” Building a million-dollar, one-person business (Trends.vc by Dru Riley)
Humor, personalization and referrals in marketing (Marketing Examined by Alex Garcia)