GMB Ep #71: Why Robinhood Needs More Oversight

In recent years, the online trading platform Robinhood has been gaining popularity among typically younger and novice investors, mainly because they have no minimums or commissions. However, there are some things about the way Robinhood operates that are not always in the best interests of the users. In this episode, Grant reviews how this brokerage firm is set up, how they make money, and what you should keep in mind if you’re trading on Robinhood.

 

 

Show Notes

[01:37] Background – Robinhood’s origin story and how it forced many other brokerage firms to drop commissions to zero.

[04:39] Day Trading Mishaps – Grant reviews one of the horror stories related to day trading on Robinhood, where one investor ended up getting a massive tax bill because they didn’t understand the rules around trading.

[08:09] Wash-Sale Rule – The IRS has set up a rule related to wash sales that get triggered when you trade frequently. Grant dives into how this rule can lead to massive tax bills for day traders on Robinhood.

[12:24] How Robinhood Makes Money – Grant reviews how Robinhood’s commission-free business model works, how it differs from a traditional brokerage firm, and one revenue source that put Robinhood under scrutiny in the investor community.

[22:56] Unnecessary Trading – Some of Robinhood’s features are designed to encourage users to make more transactions. Grant explains why this practice does not work in the best interests of Robinhood users.

[29:47] Strategies for Robinhood Users – Grant shares his take on some of the strategies Robinhood users could implement to build a robust investment portfolio.

 

Resources

Episode #63 – Anatomy of a Short Squeeze: GameStop FAQs

Episode 69: Interest Rates Are Rising....Does That Mean You Should Adjust Your Bond Allocation?

Episode #63: Anatomy of a Short Squeeze: GameStop FAQs

 
With the GameStop incident further escalating we have been getting more questions about the whole situation. So we dedicated this episode to reviewing some of the specific areas related to short a squeeze. In today’s episode Grant dives into how short squeezes work, the controversy around Robinhood’s decision to suspend trading activities, the impact short selling has on our market, whether short selling should be banned, and more.Continue reading

My Take On Short Selling

My Take On Short Selling

Short selling has been in the news quite a bit recently as a result of this whole “meme stock” debacle.  With the army of Reddit traders creating short squeezes in GameStop, AMC Theaters, and a few other companies the practice of short selling in general is being questioned.

This is partly because the media is framing this as a David vs. Goliath story.  A group of underground Reddit traders bully the big bad hedge funds of the world by creating a short squeeze that sends share prices soaring.

Hooray for the little guy!

This storyline isn’t entirely accurate though.  Melvin Capital made a lot of news for being short, but many other professionals and hedge funds made a lot of money benefiting from the short squeeze by being long.  There’s a report that Blackrock pulled in $2.4 billion on the trade.

Nevertheless, David vs. Goliath is an easy story for people to get behind.  And since it’s easy to root against a villain, short selling is coming under fire because that’s the side Goliath was on.

Short selling as a practice captures the financial spotlight every few years – usually during times of market turbulence.  It’s often used as a scapegoat for corrections, which nearly always leads to calls for some type of short selling ban or suspension.  That argument doesn’t have much merit, but the discussion attracts strong opinions anyway.  Elon Musk, for example, is notoriously in favor of outlawing short selling.

I’ll explain my take on short selling in this post.

Continue reading

Episode 69: Interest Rates Are Rising....Does That Mean You Should Adjust Your Bond Allocation?

Episode #62: GameStop, Gamma Vortex, and Confirmation Bias

 
In the past couple of weeks, an exciting and dramatic chain of events has been going on around GameStop Corp., where their stock price skyrocketed in a very short time. GameStop is a video game and gaming merchandise retailer. While they have been performing adequately, GameStop hasn’t come up with fascinating and innovative things in the past couple of years as other growth companies do. For that reason, this stock price surge triggered numerous headlines in the news and rumors and stories in the financial community. In today’s episode, Grant dives into what caused this situation, how things escalated, and whether there’s anything illegal going on. Stay tuned until the end of the episode, where Grant talks about what you should do if you’ve made a bunch of money in GameStop shares or options.Continue reading