• The Seville Reporters

In Focus: Robinhood Investors Best Wall Street?

Last week CNBC and other investment news outlets were convinced that Robinhood investors, being led by Barstool’s David Portnoy, were the reason for the head scratching rise in distressed stocks. Robinhood investors are being credited for the rise of Hertz (HTZ) after the company filed for bankruptcy, as well as the run up in bankrupt retailer J C Penny (JCP). But it hasn’t been just bankrupt companies, the 100% rise in Carnival (CCL) and the 76% rise American Airlines (AAL) among many others are believed to be the result of Robinhood investors who are trading their stimulus checks.


It is a nice story. The regular guy or girl who follows the wise words of Warren Buffett and closes the door and buys when everyone else is selling and makes a huge profit from the markets. I tip my cap to all who have made windfall profits in Hertz and Carnival Cruise Lines and all of the other stocks that have made double and even triple digit gains over the past few weeks.  But the party will soon be over.


A Wall Street Operation

The crazy gains in the market that we’ve seen over the past six weeks are being driven by the big houses on Wall Street. Robinhood investors have benefited from the run up, as they were positioning themselves in distressed names even before the March bottom, but the major Wall Street firms are doing the heavy lifting. 


Why would a major house on Wall Street pile into a name like Hertz? Because low-priced, quick moving stocks, attracts what they refer to as dumb money, and taking that dumb money is an easy operation for a major Wall Street house. The 1,800 point drop in the Dow last Thursday wasn’t caused by Robinhood investors profit taking, it was caused by major Wall Street houses momentarily leaving the party.

Reporting on this has been a bit misleading in my opinion. As someone who keeps an active watch on what Robinhood investors are buying and selling, I know that while they can move the needle on a stock price, red-lining a stock price isn’t in their capacity just yet and what we've witnessed over the past 10 weeks are stocks redlining. There are just too many names to buy, and not enough capital at Robinhood to move multiple stocks like we’ve recently seen.


But contrary to popular belief, not every Robinhood investor is a stock market newbie trading over their head and hoping for the best. There are a lot of sophisticated investors on the platform, who were seduced by the luxury of commission less trades during a time when companies were still charging $4.99 to $9.99 per trade. These investors understand how to play the markets, and use their Robinhood accounts to operate in specific situations, and even those investors with more than $50,000 in their Robinhood accounts aren’t moving the markets. 


Robintrak Top 10s Through March 2020

This CNBC clip would lead you to believe that Robinhood investors are winning and hedge fund managers and seasoned pros are in a corner licking their wounds. Nothing could be further from the truth, the big firms move the markets, stocks are up because Wall Street brokers or their algorithms have pushed them up. So, no, Robinhood investors aren’t beating Wall Street, at least not in this round.


The Warning

All good things come to an end, and if you were lucky to benefit from Wall Street running the markets up for all the numerous reasons they did, start thinking of your exit plan. Investing and trading are pretty boring affairs, and when they start to feel too exciting, it's usually the sign for me that things are about to go bad. All the hype and reports and articles about Robinhood investors or fractional share investors leading the markets charge are starting to remind me of the dot-com and Bitcoin euphoria before the rug was pulled out from underneath the unsuspecting investors.


You're not beating Wall Street, you're being operated on by Wall Street. Wall Street is notorious for leaving retail investors holding the worthless bag after an operation. It will happen again. Don't be caught holding the bag this time around, get out, count your money, be thankful for your gains, and be ready to play the game again when the board is reset.