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【TEJ Dictionary】How much does your faith cost? Introduction of the Robinhood Investor Index

This index does not weigh in terms of the US currency, but your faith.

Preface

The Robinhood Investor Index (HOOD) is a new index provided for the retail investors and fresh investors in the market. This index contains an investing portfolio including Big Techs, electric vehicle manufacturers, and trendy concept stocks. This means it has Apple, Amazon, TESLA, Disney, and Microsoft. Despite the decrease of net worth from 35 billions to 8 billions due July 29, the companies being included in its portfolio suggested that the users are buying in the companies that they truly believe and understand in the long term.

Currently, the Robinhood Investor Index was released on September 9. What influence would it bring to the market?

Keywords: Retail Investors, Index, Robinhood

Highlights

📍 The Once Head of Brokerage
📍 What is the Robinhood Investor Index?
📍 Future Challenges

The Once Head of Brokerage

Robinhood Markets, Inc. is a US financial service company, its service ranged from offering retail investors investing App and websites to offer related services for free. In 2018, they already announced to launch the crypto trading services with no commision fees. In the upcoming years they have been promoting Bitcoin, Ethereum, and other crypto currencies as well as expanding their company sales. Robinhood Markets apply for going public on NASDAQ. At that time, Goldman Sachs, J.P. Morgan, Citibank and other financial institutions were all co-managers of this trade, which shows that Robinhood was in really great condition and high expectations.

Robinhood, instead of giving it to the Wallstreet Investing Institutions, they decided to leave one-third of the subscription to the retail investors on the App. This shows that Robinhood has always been adopting novel and surprising strategies. The act of the founder Vlad Tenev and Baiju Bhatt expanded its service through the zero-commision strategy, was also unprecedented in the brokerage market. This causes other companies to follow this business model. It was estimated that during 2018 to 2021, Nearly half of the investors of brokerage were customers of Robinhood. In other words, Robinhood was the biggest and most-potential brokerage in the US.

Robinhood quarterly revenue 2020 to 2022
▲ Robinhood quarterly revenue 2020 to 2022

However, the revenue in 2022 was not so appealing. The 2022 Q1 financial report even showed that the sales revenue decreased by 43% compared to the same period in the previous year, which had already declined for 5 consecutive seasons. This shows that the US retail investors were less hype about the stock market. The MAU of April, 2022 has decreased from 17.7 million to 15.9 million, and the average income from customers has also decreased in significant amounts. Even though the company launched the new crypto wallet strategy, the hype for stock markets were already unable to recover. Robinhood laid off 9% of its employees on April 26, 2022. The reason was that the swift expansion of human power caused overlapping staff ability, complexity of organizational structure, which left them no choice but to enhance efficiency and meet the market demand by firing the workers.

The Q2 financial report was even more disappointing in July, having a result of 44% of revenue decrease, 34% of MAU decrease, a loss of 55$ transaction activity, and a great scale of lay off of 23%, resulting in nearly 1,300 people losing their jobs. This shows that a lot of systematic risks have caused Robinhood’s services to deteriorate, including the fall of the environment, high inflation rate, collapse of the crypto market, decrease in trusteeship, financial scandal, and large costs of lawsuits. With the announcement of bearishness, Robinhood’s stock price has already fallen about 50% since the beginning of 2022.

What is the Robinhood Investor Index?

The Robinhood Investor Index is a portfolio index composed of 100 stocks which were investigated to be the most beloved and invested according to data on Robinhood. This measures the convictions each investor held for their portfolio by viewing the percentage that they were investing in. The purpose is to ensure that every inversor has the equal investing opportunity, and also to allow investors how others act. Robinhood thinks that at times when the stock market fluctuates severely, observing how others disperse their funds would be helpful for individuals. The index would not reflect the performance or position that investors were making, but the thoughts the investor held when making an investing decision. We can tell that Robinhood Markets are trying innovative strategies to break the dilemma, which also fits the retail, young investors’ investing preferences.

According to the data provided by Robinhood, the performances of the 100 stocks being held in the Robinhood Index have outperformed the overall condition of the NASDAQ index. The NASDAQ index has dropped 23%, the Dow Jones Industrial Average dropped 12%, the S&P 500 index has also dropped by 15%. Under the overall period of recession, the 100 stocks selected by Robinhood seems to have greater ability of defensiveness, which would also bring benefits to brokerage firms.

The Dow Jones Industrial Average
The Dow Jones Industrial Average

Apparently, blindly following others’ investing strategies isn’t a smart move. So the Robinhood is built to be only a data point for the strategy making for investors. There is still going to be needing other indexes to structure the complete market prediction. For example, according to the emotional investigation composed by The American Association of Individual Investors (AAII), over half of the investors think that the stock price would fall in the next six months. However, this might be a potential buy-in signal. That is because the organization takes the emotions as a reverse signal. This means that the Robinhood Investor Index could possibly become an index of the trend as a whole.

Future challenges

Overall, the representation of this index includes consumer goods, technologies, and consumer services. In 2021, trendy stocks like GameStop had a rise in stock price because of having WallStreetBets. which was a social media site like Reddit. However, Robinhood emphasized that most of the users are long-term investors who chose to buy in and hold stocks, not traders who might possibly engage in short-term trading. Thus, pausing the buy-in action from other companies like GameStop in the trading heat was a necessary process.

Currently, Robinhood is facing a challenge of the bad economy, which is also striking the portfolios of the investors and bringing negative effects to the company. The lay-off plan last month was derived from the deterioration of economic conditions, which affected their transactions and decreased the stock value. Their rank in the top brokerage in the US has also dropped to 11th. On the other hand, with the new index being launched, Robinhood might see a user return in the near future.

CNN Business Researchers predicted that the stock price of Robinhood in the next 12 months would be 10 dollars per share, at a predicted high point at 28 dollars and low one at 7 dollars. This shows that Robinhood is possibly having a growth rate of 3.84% in its stock price. Even though the growth would not be significant, the rebound might give Robinhood an opportunity to keep its company running. The research team suggests investors buy or hold its stock. Most think that this index and the environmental stabilization would normalize Robinhood’s management, or furthermore, have great rebound.

Where to get more info?

Click Taiwan Finance Database → TEJ Profile → Macroeconomics to obtain more economy indexes to analyze according to your investing needs.

TEJ Database, macroeconomics file
▲ TEJ Database, macroeconomics file

If you have questions about this article, or you want to get further access to the TEJ Database, feel free to leave a comment or email us.

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TEJ 台灣經濟新報

TEJ 台灣經濟新報

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TEJ 為台灣本土第一大財經資訊公司,成立於 1990 年,提供金融市場基本分析所需資訊,以及信用風險、法遵科技、資產評價、量化分析及 ESG 等解決方案及顧問服務。鑒於財務金融領域日趨多元與複雜,TEJ 結合實務與學術界的精英人才,致力於開發機器學習、人工智慧 AI 及自然語言處理 NLP 等新技術,持續提供創新服務