Chapter 1: What event did Vlad Tenev attend that showcased his popularity?
A few months ago, our colleague Hannah Aaron Lang went to Las Vegas to attend a flashy conference.
The main event of the weekend happened at this place called the Grand Prix Plaza. It's this tourist attraction and venue for Formula One racing. So there's a kind of race car theme to the whole event.
The conference was packed.
Everyone is really excited to be there. Lots of them have traveled from over the country and the whole room is kind of buzzing.
Chapter 2: What message did Vlad Tenev convey about trading at the conference?
Then the lights go dark and these sort of green lights start flashing and the bass starts thrumming.
The person everyone was so pumped to see was Vlad Tenev, the CEO of the investing app Robinhood.
And Vlad strolls onto the stage and beams at the crowd. He's wearing this race car driver's jumpsuit with the Robin Hood logo on the back and these green and black customized Nike sneakers that I later find out have Vlad sort of etched across the tongue.
We've had a good year, haven't we? You guys look good. Everyone's dressed nice. Welcome to the Grand Prix Plaza in...
So what was the message that Vlad Tenev was there to deliver?
He basically says, I've often compared trading to playing the violin because you have to practice and you have to put in the reps and sort of learn the markets that way. But actually, I've thought about it, and I think trading is a lot more like driving a race car.
But I think racing is actually a better comparison for one simple reason. The car really matters.
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Chapter 3: How did Robinhood's trading restrictions during the GameStop saga impact its reputation?
And that's what Robinhood is here to do. He essentially says, we are the race car that is going to help you win this race.
Oftentimes, a finely tuned machine can make all the difference. And that's the role that we feel Robinhood plays for our active traders.
Everyone knows investing carries risks. But Tenev and his company seem to be pressing the pedal to the metal.
Risk-taking is kind of back for individual investors, and they're getting rewarded for it. And there's not a lot of people doing more to stoke those spirits than Vlad and Robinhood.
The company's critics say that Robinhood might be spurring a new generation of investors to view playing the markets as a kind of quick-hit game that more closely resembles a casino than, say, a long-term pathway to build wealth.
Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Tuesday, December 16th. Coming up on the show, the risk-loving traders fueling the rise of Robinhood. Vlad Tenev, the CEO of Robinhood, is on top of the world right now. His company is raking it in.
Not only was it added to the S&P 500 stock index this year, it was also one of the best performing stocks among all 500 companies. But just a few years ago, Tenev and Robinhood were really struggling. Tenev co-founded Robinhood more than a decade ago with the goal of democratizing finance. The idea was to make buying and selling stocks easier and more accessible.
And the big way that they initially make waves is that not only do they build this stock trading app for millennials, but they're going to let their customers trade for free.
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Chapter 4: What challenges did Vlad Tenev face after Robinhood's public offering?
And that was really innovative at the time. Most brokerages charged commissions, you know, a fee that you had to pay every time you trade.
The app took off, and in 2021, it played a big role in the GameStop saga, which is when small-time investors banded together to buy GameStop stock and sent it soaring. But as the trading mania peaked, volatility became so extreme that at one point Robinhood restricted trading of meme stocks and left investors with only two options, hold or sell.
But by preventing people from buying, it blunted GameStop's growth and made customers furious. The company said at the time that it had to restrict trades in response to capital requirements from its clearinghouse.
And this is a really tough moment. It thrusts Robinhood into the national spotlight in a way it hadn't been before. And it's in the hot seat in a lot of ways. And Vlad is in the hot seat in a lot of ways. Robinhood customers are furious. Wall Street is mad. Regulators and lawmakers are now involved.
And Tenev got raked over the coals. Here he is in an interview back then with Dave Portnoy of Barstool Sports.
I'm proud of the way the team handled the crisis. By and large, we were able to protect the firm. We were able to prevent customers from having a bigger issue.
That's the part. How can you, in that line you just said, like proud of how we handled it.
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Chapter 5: How did Tenev decide to refocus Robinhood's strategy after hitting rock bottom?
How can that be possible? Eventually, Tenev testified in front of Congress and tried to distance himself from the risky culture that fueled the GameStop situation.
Thank you for the invitation to speak about Robin Hood and the millions of people we serve.
As he gets in front of Congress and says, look... Actually, the majority of our customers are buying and holding stocks for the long term.
Contrary to some very misleading and highly uninformed reports, we see evidence that most of our customers are investing for the long term.
You know, there may be what you and I might call like playing it safe. You know, I'm going to buy a blue chip stock, hold on to it for a really long time and collect my gains that way. And he makes a point to tell lawmakers that only about 2% of Robinhood's customers are day traders.
Why do you think he wanted to emphasize that point, that Robinhood wasn't about risky investing?
Yeah, because I think in this moment, a lot of people are taken aback by what is in many ways like the first real instance of retail traders really flexing their muscles and, again, making huge waves on Wall Street. And I think a lot of regulators, lawmakers— professional investors are trying to make sense of this and are maybe a little skeptical of these aggressive investors.
And I think Vlad's instinct is to say that Robinhood is not necessarily synonymous with this group of investors.
A few months later, things got even worse. Robinhood went public on the stock market and really struggled to get investors to buy in.
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Chapter 6: What new features did Robinhood introduce to attract active traders?
Exactly. Yeah, I would say it's kind of like a failing grade from Wall Street, like giving your company an F, so to speak.
What does he decide to do at that point?
So it's a really challenging time for Vlad and for Robin Hood. And as he told this to me, he basically decides to take a little bit of time with his family, go on a trip and try and get some perspective. So he goes on a family trip to Maui and... He gets this call, hey, we're hearing that Sam Bankman Freed, the now infamous crypto founder.
Who is serving jail time, but this is before that.
Right, this is pre-jail. He's looking to buy a piece of Robinhood. And this is basically a sign that Robin Hood looks so weak that it's now a potential takeover target. This is a real low point for Vlad.
He was still in Maui, which is very beautiful.
Right, exactly. So I guess it's as low as you can get when in Maui.
Sam Bankman-Fried never ended up taking over Robin Hood. But the moment was a turning point for Tenev.
He essentially decides to take this back to basics. He even thinks to himself, let's say the board fired me tomorrow and they brought in my replacement. Like, what would that person do?
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Chapter 7: How do Robinhood's prediction markets differ from traditional betting?
And how can I kind of start from the ground up? One thing he realizes is that the company is essentially not focusing on the right customers.
Up until that point, Robinhood had been mainly focused on first-time investors, many of whom weren't very aggressive. But the customers that made the most money for Robinhood's business were more like the active traders from the GameStop saga. And they also happened to be some of the most frustrated with the platform.
And their chief brokerage officer was talking to me about it and compared it to an airline whose frequent flyers hate the airline the most. It just didn't really make sense for the business. So Vlad basically decides that he needs to start from square one and rebuild the company with these traders at its core.
How Tenev transformed the company and what it means for the world of investing is after the break. After nearly hitting rock bottom, Vlad Tenev, the CEO of Robinhood, realized he needed to rethink the company's strategy. He told Hannah that rather than focusing on cautious, first-time investors, he wanted to lean into the most active users, the ones who are often taking the biggest risks.
He essentially offers them a better trading platform, more products, more ways to trade, and especially most recently in the past year, these access to newer markets that maybe competitors aren't offering yet.
Robinhood started making it easier than other platforms, not just to buy and sell stocks, but also to invest in cryptocurrencies and other high-risk financial products like zero-day options.
Zero-date to expiration options, which are these ultra-risky, fast-expiring contracts that require perfect timing, and they come with huge risk but huge reward as well. One trader that I talked to that primarily trades zero-date options told me, I can turn $500 or $600 into $50,000 or $60,000 if I make the perfect trade.
Sounds nice.
Right, exactly. But of course, the converse of that is that you have the potential for huge losses as well. And because of the high risk involved, it requires this kind of perfect timing of the market.
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Chapter 8: What does the future hold for Robinhood and its users in a fluctuating market?
And it does open. It is one of the highest risk trades out there to engage in.
But of all the things Robinhood has leaned into, prediction markets have drawn the most scrutiny.
And we've rolled out a new prediction markets hub, which you can see right here on the homepage. This has been really popular.
So these are platforms where traders can buy futures contracts tied to the outcome of events happening in the future.
I predict that so-and-so will become the president or whatever, right?
Exactly, exactly. So elections, like the Federal Reserve meeting, you can basically put money down on the outcome of these future events that they pay off if your prediction is accurate. And the type of contract that has made quite a splash is sports. So these prediction markets are available for sports games and entertainment events.
Robinhood, getting into sports, the popular trading platform this week, added a prediction markets hub just in time for March Madness.
So not only can you bet on or hedge your portfolio against who's going to win the election, for example, but you can also bet on the winner of, you know, the Monday night football game.
Or whether the Portland Trailblazers will win the NBA championship.
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