Robinhood Trading App: A Seasoned Expert Puts It to the Test
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What is the main topic discussed in this episode?
Here's your money briefing for Friday, December 11th. I'm J.R. Whelan for The Wall Street Journal. Regular listeners will recall that we've talked before about the popular trading app Robinhood and how it's simplified stock trading for its 13 million users. Its flashy graphics and swipe controls make it easy to trade. But how risky is it? Our intelligent investor columnist Jason Zweig decided to try it out.
Financial technology, like brokerage app on your smartphone, is just a tool. And like any tool, it can be used to make things better or to make things worse. You can build furniture with a hammer and you can break furniture with a hammer.
What did Jason Zweig aim to learn by trying the Robinhood app?
And you can make yourself wealthier with a brokerage app and you can make yourself poorer.
So how do you do? Coming up, Jason will take us through some of the trades he executed and discuss the psychological role that financial technology like Robinhood plays in shaping people's investment decisions. That's after the break.
The stock trading app Robinhood has made it easy for inexperienced traders to quickly buy and sell stocks in the hopes of scoring quick returns. It's a far cry from the more measured approach taken by most seasoned investors. Our intelligent investor columnist Jason Zweig recently put Robinhood to the test, and he's with us now to talk about how he did. Jason, thanks for being here.
My pleasure.
Thanks. So, you know, Jason, you're known as the intelligent investor. You are Mr. No Sudden Moves. You tend to urge restraint and Robinhood is a bit of a departure for you. So what inspired you to take a walk, you know, on the wild side?
Robinhood has gotten incredible amounts of attention this year, especially since the pandemic struck as kind of the popular way for inexperienced investors to try speculating in the stock market and other financial markets. And it wasn't totally clear to me whether all of that criticism was deserved or what the app was really like. So I just decided I would give it a try.
Okay, and so what kind of trading did you do?
Well, I've always been a very long-term investor. Often, you know, I hold my investments for literally for decades at a time, some actually for more than a quarter century so far. But my mission here was to try to make as much money as possible as fast as possible. That's what my editor ordered me to do. So I went into all of this with a plan. I was going to buy... extremely volatile, often very small stocks that had high recent returns.
How did Zweig’s trading plan differ from his usual long‑term strategy?
And the reason to do this is because such so-called momentum stocks often continue to generate very high returns, at least for a short period. And I was hoping to capture those and, in effect, get rich quick with my $100. But what happened was when I opened the app and started trading, all of the sort of buzzing colors and displays completely knocked me off my plan. And even though I had a list of five stocks I wanted to buy... I ended up buying a bunch of the stocks that simply were most popular on the app. And from there, it kind of all went downhill. The next thing I knew, I was trading leveraged ETFs, which are extraordinarily risky and can sort of triple the market's losses in the course of a day.
And I ended up losing sleep. I woke up at 2.30 in the morning one night and said, I have to make a big score. And all of this was completely alien to my investing personality. Although, fortunately, it did not affect my portfolio at all outside the app. But it did make me crazy in a hurry inside the app.
Ah, okay. So you bought some stocks, but you also bought some exchange-traded funds. ETFs aren't really on the shopping list of most Robinhood traders, though, are they?
Well, yes and no. They do turn up from time to time in the list of most popular holdings on Robinhood, usually not right near the top, but there's no question that people do buy them. And I think the area of greater concern here is that many discount brokerage firms, if you want to buy a leveraged or inverse ETF. And these are specialized funds that tend to magnify the returns of various financial assets, both on the upside and on the downside.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:05–0:45
2
What did Jason Zweig aim to learn by trying the Robinhood app?
0:45–2:49
3
How did Zweig’s trading plan differ from his usual long‑term strategy?
2:49–5:05
4
Which trades did he make first and why did the app change his plan?
5:05–9:51
5
What are leveraged and inverse ETFs and why are they risky?
9:51–11:58
6
How does Robinhood present risky products compared with other brokerages?
11:58–13:08
Speakers
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