No, I am not talking about the archer who stole from the rich and gave to the poor in classic stories and movies. Different from the tales of our childhood, the name Robinhood is actually a story related to what has happened in recent times.
In all seriousness, you may have seen Robinhood in the news lately. This is not someone running around stealing in the literal sense. But, stealing nonetheless may have and most likely happened. The Robinhood that has been in the news lately is actually an online brokerage firm that boasts a commission-free stock trading app. Many people have used the app to start buying, trading, and selling stocks.
For a company that prides itself on “democratizing” the stock market, Robinhood and a few other companies have not been very democratic about who can buy what. In recent news, a Reddit (a social news aggregation, web content rating and discussion website) group named “WallStreetBets” essentially flooded and pumped Gamestop of all companies. This was because several hedge fund companies and brokerage firms wanted to buy most of the stocks to hold out in the event that Gamestop went out of business. This is because the holders would now own all the assets that were liquidated.
Unfortunately for the wolves of Wall Street, a bunch of Reddit users did it first. In fact, so many people bought stock in Gamestop the stock grew over 300 percent in less than 48 hours. This is where the problems started. There are no rules against retail investors, or ordinary people all deciding to buy a stock, and this is close to what hedge funds practice on a regular basis. The problem was that the retail investors did it first, shortly after Robinhood halted the buying of Gamestop and a few other companies like AMC from their app.
Now this may not seem very fair, because it is not, and it is actually considered illegal. Shortly after Robinhood was seen trying to bail out the multimillion dollar hedge fund corporations, a group, most likely from the “WallStreetBets” Reddit, filed a class action lawsuit against Robinhood for market manipulation.
We have just finished the first month of 2021, and this controversy has Ted Cruz, a republican U.S. senator from Texas, and Alexandria-Ocassio Cortes, a U.S. house representative from New York who is considered a “progressive” democrat, agreeing that what Robinhood did was illegal and deserved investigation.
So, this act of market manipulation may come to pass, but what does this say to all of the retail investors, myself included, that plan to invest and make money from trading stocks? To answer this question, it is best to quote an investor you may know.. Warren Buffet’s wise words may be more important right now than ever: “Do not put all your eggs in one basket.”