Ah, shares of shares. Through Robinhood no less. Sounds like a great plan for the platform which has had how many comically massive mistakes over the past few months? Are they going to let r/wsb leverage these 100x as well?
Don't get me wrong, I love some of what they're doing....I just don't trust them with my money.
I've been with Robinhood for over 3 years and I have had zero issues with my portfolio or any features around managing my account day-to-day. The only thing that tripped me up was the transition from Apex to their own clearing house, so I had some extra paperwork to file w/ the IRS during that transition year.
I see a lot of people saying things like "I don't trust Robinhood with my money". I am curious what scenario you see unfolding with Robinhood that could result in loss of your assets. Especially scenarios impacting Robinhood uniquely. Are you aware that Robinhood, as well as virtually every other brokerage in America, provides SIPC insurance up to 500K USD on all (non-crypto) investment accounts? This is on-par with the same kind of protections you get with any FDIC-insured checking or savings account. In order to even qualify for this kind of insurance, Robinhood had to essentially sell its soul to the various auditors and regulators. Regulations around these kinds of businesses are incredibly stringent. You would probably feel a lot more comfortable with any arbitrary brokerage if you had to sit through one of their audits, or were simply made aware of how extensive it is.
There is certainly a lot of "controversy" around Robinhood in the press lately (surely no competitor would stand to gain from running hit pieces against a zero commission broker), but from a purely academic standpoint, it is just noise and doesn't impact the ability of the firm to carry out its fiduciary duties in a reliable and consistent manner.
Not the parent you're replying to, but I don't think I'd say I wouldn't trust Robinhood with my money. As you say, they're a SIPC-insured, regulated entity.
What I would say is that I just don't trust Robinhood as a company. They feel scummy to me, and their marketing and UX pushes practices that I would not consider good investment advice. I can only assume that pushing frequent trading (and poorly-described options trading) on unsophisticated investors makes more money for them. But it's likely at the expense of those investors. Even if I "know better" and could just take advantage of the platform as-is, I don't care to support that behavior.
Take that and pile that on top of -- for example -- their misleading and factually incorrect announcement about their quickly-pulled cash management product last year... yeah, no thanks, I'll pass.
Agreed. They've adopted the addictive UX patterns of other applications, which is irresponsible for an investment platform. It encourages gambling and making poor trading choices.
Push notifications are a prime example of this. They encourage users to act on short term news rather company fundamentals, which is a dangerous mindset for novice investors. Fortunately for them they've been operating solely during favorable market conditions but when the market does crash I fully expect them to face backlash.
>SIPC insurance up to 500K USD on all (non-crypto) investment accounts? This is on-par with the same kind of protections you get with any FDIC-insured checking or savings account.
While similar, SIPC is not "on-par" with FDIC.
With FDIC, the bank is taken over Friday afternoon and your cash is available Monday morning.
With SIPC, it could very easily be five years before you have access to your assets again.
The difference in the value of the insurance also means the regulatory scrutiny behind SIPC is far lower.
I don't have an especially high opinion of Robinhood, and I'll grant you that they've leaned into the "move fast and break stuff" mindset, and they've certainly made some comical mistakes.
On the other hand, I still feel like it's a big jump to go from there to "...and so I don't trust them with my money". Have they lost anyone's money? Do you think they're in some real danger of shutting down and taking people's money with them? "These idiots keep failing to properly calculate margin requirements" is a pretty damning thing to say about a brokerage, but....
Brokerages are pretty heavily regulated. Why do you think your money wouldn't be safe?
Considering they have completely annihilated their reputation with anyone remotely paying attention, the only market left for them might be 18 year olds who can only invest $10 at a time
That's a pretty toxic comment. Surely multiple banks and other software businesses have made mistakes but that doesn't stop the users from trusting their services.
All this will blow over and people will forgive and forget. You don't need to age discriminant just because they make it easier to invest
As a financial institution trust is everything. When they lied about savings accounts being SPIC insured, they lost a lot of credibility that will be near impossible to get back. And nothing against 18 year old, I also used Robinhood starting out. But once you have over a couple thousand invested, you need a bit more confidence in the company.
This is without even going into the stupidity that was infinite leverage and the CEOs response afterwards. That is an entirely different level of incompetence that would need a novel to fully expand upon
The whole idea of "shares" is a pointless legacy concept. What really matters is the fraction of the company you own. Back when trading was conducted using physical paper stock certificates it made sense to have discrete individual shares but the concept has now outlived its usefulness. In the future it would make more sense to just say, for example, that you can invest $12345.67 to purchase 0.0000000058% of company XYZ.
you are very wrong on this. Shares still matter very much, for reasons of legal ownership (each share has a value assigned to it, and can be sold as a discrete entity, a fraction of something does not), voting and share priority rules (who gets paid first in the event of bankruptcy) and when dealing with dilution, new issue and stock splits.
The entire legal system around equity investment is built around these concepts, and while you might take a different approach to the whole thing if you could "do a full re-write of the codebase", that's not really how laws work. There's also the fact that the same or very similar rules are applied worldwide, allowing like-for-like laws to apply cross borders. A Chinese share can be described by US laws. Do you know how hard it would be to toss all that global legal framework out and replace it with something else?
And you've not really explained why you think your system is better, either. I'd say the discrete units of shares that make ownership laws simpler are worth the hassle, on their own.
FYI, Folio has been offering fractional shares for over a decade. They're terrible at marketing and don't have as slick an app, but they control their full stack down to the DTCC. They cover their traces in patents, so I'm not sure Robinhood is doing the same thing as Folio has battle-tested https://www.folioinvesting.com/folioinvesting/brokerage-feat...
M1 Finance already has fractional shares too. They're newer than Robinhood but they're built to be more of a long-term investing platform. Robinhood's UI feels more like a gambling platform to trade hourly on IMO. M1's "Pies" feature is very compelling. https://www.m1finance.com/how-it-works/invest/pies
(I do not work for either. I've used Robinhood for 4 years.)
Problem that m1 is going to have imo now is the once a day trading window. The value proposition for this market has seriously changed with the big player move to free trades, and fractional shares are a good wedge since the bigger players don’t have that. But now m1 is a smaller player with more restrictions than m1, and it’s going to be tough.
Do you really own anything, or are you just lending money to Robinhood? Does your fractional buy get reported to the transfer agent for the stock? Do you get the annual report? Voting rights?
Most retail investors don’t want an annual report or voting rights, nor do they mind if they own the share if the asset they buy tracks it sufficiently well.
It's still necessary information to know, regardless of what retail investors want. If they were up front about it, it wouldn't matter, but they don't seem to be.
Or perhaps more importantly, if Robinhood fails do you actually get to keep the shares like with a traditional broker or do "your" fractional shares disappear with the company?
Doesn't that rely on you being the actual owner of the shares? If your shares only exist in Robinhood's database, I don't think SIPC would apply.
EDIT: After some Googling it appears that SIPC does protect securities that weren't actually purchased due to fraud or mismanagement. IANAL so I don't know if that would apply to this specific situation, but they have protected other non-owners before like in the case of Bernie Madoff.
No, they are held in "street name" but the customer still owns them. You're not just a creditor of the broker. I've had a broker go bust, so I've been through the unwinding process.
A broker which just has pretend stock ownership as a book entry with the broker is called a "bucket shop".[1] A crime in most US states since the 1920s.
There may be regulatory technicalities that must be sorted out. But there isn't any reason this couldn't be handled in exactly the same way as street name shares are today. Voting rights would be interesting.
This isn’t really a new thing, DRIPs have had this forever, but nice to see it available especially when looking at purchases like AMZN where maybe you can only afford purchase 2.75 shares or something.
I don't quite understand the appeal of investing via phone app. Investing my life savings (any any amount really) is one of the few things I would absolutely not want to do on a phone touchscreen.
When I heard of Robinhood I thought it would fail for sure... I guess that shows how much I can predict startup success.
I don’t use Robinhood anymore, but it’s definitely had an effect on retail brokerages. Foremost, it has attracted a younger crowd than most other brokerages have been able to.
The $0 commission is now pretty universal, and most brokerages are pushing better mobile apps. I don’t really trade from my phone, but you have to admit it’s convenient for when you’re not always near a desktop.
I don't see how the phone format is so much worse? To be honest, most of my recent investments have been limit orders submitted from the can. Of course by that point I've already done a lot of research on a desktop computer, but if I get a price movement alert I'm double checking for recent news (often with a twitter cross reference) and submitting an order as fast as I can... which often means using the closest device, which more often than not is my phone
I'm really curious if this is a legitimate growth driver for brokerages and what % of trading volume is represented by a buyer looking to buy < 1 share in a certain company.
It feels very incremental to me.
It also feels like a feature that is representative of something that would only happen at the "top" of the market.
Actually I think this is huge, not for existing investors but precisely for people who aren't.
For a teenager who wants to invest $100 to "dip their toes in" when a share of Amazon is over $1,700?!?! And Google over $1,300?
Back in the days when stock regularly split it wasn't a big issue. But now that a bunch of companies think it's somehow unfashionable to split their stock (e.g. Amazon and Google), all this does is exclude smaller investors. Fractional shares solves this problem.
A single share of stock shouldn't cost more than a MacBook, sheesh.
I set up a small custodial account that my teenager can trade stocks in. Yes, I know it is smarter to invest in ETFs.. Buying an individual stock gives a kid a reason to read balance sheet, a P&L, understand what a dividend is, a share is, and so forth. Also, he learns what risk feels like, that it is really hard to outsmart the market. Better to do these things with small amounts of money.
So yeah, I do want to encourage my teenager to buy stock in individual companies. Mostly because he doesn't have a lot of money to lose, and its a great way to learn.
What if he wins? A common thread among gambling addicts is a large win at a young age. It’s not that unlikely that he will beat the market during his most formative years and you will have taught him the opposite of what you intended.
He's still a kid and he could only invest under my supervision. It is a small amount of money and he is not going on the margin. If he kept doing great year over year I would let him keep going.
Here's what really happened: He bought a bunch of kooky stocks because he "liked the name". That did predictably terribly. Then he bought a couple blue chip companies, lost interest and drifted into the black. If you buy individual stocks and hold them, on average you will make money. You would usually do better with an ETF too. I think it was a good lesson that patience is better than trying to outsmart markets.
I can't speak for others but I can share one anecdotal experience by sharing my story.
I started investing in middle school when the social studies teacher enrolled all of his classrooms into a virtual stock market simulation. Everyone starts with 100k, must own a minimum of 20 stocks on any given day, and tries to make the most within a set amount of weeks. Short-selling is included. I don't remember how well I did but I got an ornate Dominos Pizza gift certificate (which I never spent because it looked so beautiful) so I must have done well. That was 13 years ago. Today, I have a 40k Robinhood investment account which is enough for a home down payment and I plan to use it to buy a modest ~200k home in a few months.
I outperformed significantly in my early 3 years of investing with real money with a 38% return. However I have underperformed in the last 1 year and thus underperformed the market overall with an 18% overall (4-year) return not including dividends. This is because my favorite investment data app, StockGuru Pro, that cost $10 was discontinued and I don't have a suitable replacement (at all). I expect to underperform in the future unless I find a well-priced replacement or cough up the hundreds of dollars for better investment data. The ICE buyout of the NYSE has caused the price of market data to skyrocket which lead to that app's discontinuation.
The wins I experienced at a young age were very positive because it gave me a reason to save my money instead of spending it on all the things I wanted. Savings account interest rates of 0.01 to 2% interest isn't motivating at all to save because it takes more than 36 years to double money at that rate. If it weren't for learning to invest at an early age, I'd be just like the rest of the average Americans. The 50th percentile for my age (27) has a net worth of $5000 and I would be average with $5000 too if I didn't have that reason to save!
It also provided a good learning experience from which I have formed 5 principles:
1) Take calculated risks
2) Protect your principal but it's okay to risk the interest. (Phrased another way: don't lose money.)
3) Don't put all of your eggs into one basket. Diversify!
4) Don't use margin if you don't know what a margin call is.
5) Options are for viewing, watching, and analysing but not for trading (even if Robinhood makes trading them free). 90% of people lose money trading options.
Overall, an anecdotal positive experience here that I'm happy to share but with a small sample size of one.
Sometimes learning experiences are worth as much as the money. Also, it's easier to panic sell index funds you aren't attached to than individual stocks you're emotionally attached to. How do you perform a valuation on an index fund like you can with a stock?
To paraphrase Warren Buffett's investment advice, if you have a high IQ, donate the extra points to someone else because what you need more is a strong stomach (for gut-wrenching volatility).
> it's easier to panic sell index funds you aren't attached to than individual stocks you're emotionally attached to.
If emotions are a part of your decision, you've already lost the game. I get that humans are emotional creatures, but if you start making investment decisions based on panic and emotions, it doesn't matter if you've been buying index funds or individual stocks; you're going to perform poorly and likely lose some money either way.
> If emotions are a part of your decision, you're going to perform poorly.
I agree. Hacker News readers are more logic based but the rest of the world is more emotional based. For most people, the emotional half of the brain dominates the logical half of the brain. I think we can agree that being invested in a diverse basket of 20+ stocks with 5% or less of the portfolio invested in each is regarded as a pretty safe bet. I also think we can agree that anyone who invests will do better in the long run than people who don't invest.
The news commonly sells convincing chichen-little fear that the sky is falling, the market's gonna crash, and we should all flock to gold. But I know with higher certainty that Amazon will keep shipping packages, Target will keep selling merchandise, Apple will keep selling more iPhones, and VISA cards will keep collecting interchange fees.
We can debate though whether it's better to hold an index fund you might panic sell or individual stocks that you plan to hold forever.
Target will keep selling merchandise, Apple will keep selling more iPhones
Once upon a time Sears, Roebuck and Company was the country's largest retailer. Much more recently, Motorola and Blackberry sold millions of phones and Apple didn't.
individual stocks that you plan to hold forever.
Once upon a time people thought you could own the Nifty Fifty[1] stocks forever. You would probably have been better off putting your money in an index fund. E.g. what's a recent price quote on Eastman Kodak?
Ummm, I just looked at that list. If you spread out an investment over those companies... I'm pretty sure you're doing damn well despite obviously having a few under performers. Since 1970, Disney grew 3500% faster than inflation. Walmart grew 2000% faster than inflation. Even with the companies that went to 0, there are some insanely good buys in that list if the year was 1970.
People focus on the investment losses more because a loss is more than twice as negative to them as a gain is positive. You can gain an edge on the market if you view gains and losses for exactly what they are. The beautiful part about investing is that the downside is limited (because a stock can't go below 0) but the upside is unlimited.
The multi-baggers in the portfolio such as: 4x gains in Netflix, 4x gains in Amazon, 3x gains in Microsoft, and 11x gains in Shopify over the last 5 years will have outweighed GE dropping 50%, GM dropping 1x*, Seers dropping 1x, and Kodak dropping 85%.
I'm not as familiar with the Nifty 50 probably because I'm younger. Investopedia says it was the popular large-cap NYSE stocks of the 1960s and 1970s without an official list. but could also mean one of at least 6 indexes on the indian stock exchange[2]. Gurufocus claims they were Large Cap Growth Stocks with an average P/E Ratio of 42x.[3] Large caps are known to underperform overall in the long run but outperform more frequently in shorter 1 year time frames.[1] The same is true with growth stocks vs value stocks.
It seems to me that the reason the Nifty 50 "lost 80% to 90%" [3] is because it was overweight in large cap and growth stocks while neglecting value stocks and small cap stocks.[1] This is evidenced by the S&P 500 growing 6.78% per year annualized from 1960 to 1979 and showing a positive return over every 15 year period in recorded stock market history.[4]
Can you expand on how index ETFs are a bubble? You say that there's wide consensus, but when I researched it the consensus seemed to be that indexing was the right strategy for most people (and even sophisticated investors like Warren Buffett have instructed his trusts to use an indexing approach).
Beating the index is a zero-sum game, for every winner there must be a loser. Of course you can make educated choices based on the fundamentals but the same is true for sports betting too. Unlike sports betting, you are directly competing against a large number of pretty smart people who play this zero-sum game as a full time job. And some of them even have inside information.
Not that it's impossible to win of course. I can easily imagine someone with deep expertise in a certain area having a key insight about a specific company that others don't, or someone who analyzes company balance sheets and business fundamentals to come up with an independent valuation being above-average at that. It's hard to imagine that either of these groups represent the average person who will trade fractional shares on Robin Hood though.
If everyone just buys the index, then the underlying stocks that make up the index are propped up in a way that wouldn't be the case if that individual stock was not a part of said index.
(This is not hypothetical it is actually happening)
The idea with index investing is usually to buy a total stock market index. The whole stock market is in the index, so saying the index is in a bubble is basically the same as saying the stock market itself is in a bubble.
Which could be, but isn't an argument for buying individual stocks instead of the index, since that doesn't avoid the problem.
This is a pretty reasonable theory. And it's true, if everyone indexes then stocks generally become mispriced. But this theory only applies at the extreme, not at the margins if say 50% or 90% of money is in index funds. If a few savvy traders buy the good stocks and sell the bad ones, they make a profit and the stocks become "correctly" priced again.
In one view of the market, this is what all those hedge funds are paid to do. They keep the prices correct and extract some money, while everyone else indexes and pays them a small fraction of their returns. Of course, hedge funds aren't getting much of that pie these days.
It is hypothetical, because you're ignoring the other side of the equation: all the sophisticated investors (hedge funds etc.) who detect that stocks are temporarily propped up in some sector and will collapse, and so go short at the inflated prices... thus lowering prices.
Companies always face a reckoning point, on their individual timelines.
It's just arbitrage 101. Nothing stays mispriced forever. And the sooner the "other side" figures it out, the quicker prices correct -- so you've got to be fast. Which is exactly what sophisticated investors are.
2/3rds of hedge fund managers underperform the S&P500 index so it's recommended for all investors to keep some index fund ETFs around (like VTI or VOO) as a benchmark to outperform.
Yeah not saying that part of your portfolio cannot just be the broad market, but I also often see people suggesting that doing anything other than just buying the index is somehow irresponsible and akin to "gambling".
I agree. Very incremental and I’d be surprise if it’s a meaningful growth driver. However, it probably has most appeal to new investors who are just starting out which seems on-message for Robinhood. My teenager who got interested in learning about investing this past year has a portfolio comprised almost entirely of single share positions. Fractional shares would interest him.
Half a decade ago I researched starting a fractional trading platform, and I gave up on the idea because I decided it was illegal.
Now in this thread people are saying multiple such platforms exist. Did I make a mistake or get something wrong? Or are they applying some kind of workaround? I can't remember why I thought it wasn't allowed.
When you are alone, then any decision you make is unilateral. Making a decision is quite easy, you just gather information until you feel your argument is well supported, and then you assume your theory is correct and act accordingly.
I heard Robin Hood earns revenue by operating a trading dark pool. Is this true? And if so, wouldn't using Robinhood be like jumping into a shark tank?
I'm not totally sure how it's structured, but I imagine RH "owns" the shares and offers you the corresponding fractional amount of value/dividends, etc.
Fractional shares are common when using DRIPs (Dividend ReInvestment Plans) which basically just use all dividend proceeds to purchase more shares instead of paying out in cash. Since then entire amount is used, you always get a fractional share since it would be very rare to get a dividend that is an exact multiple of the market price.
My understanding is that the way this works is that the broker will generally already have an inventory of all of the stocks that are regularly traded through them and simply carve up your fractional allocation from this inventory. When you purchase shares through a broker they can simply sell you the shares directly out of their inventory if they can match the market price. They will even get a small incentive to do this since it produces order flow (volume) without hitting the exchange directly.
This also helps with order clearing (the T+3 rule for ownership transfer). Since the broker is selling out of their inventory, it is virtually guaranteed that your order will clear. When transferring shares between institutions, it's possible that this process will fail and you will be notified that your order wasn't able to be fulfilled. It's rare, but can happen.
While purchasing fractional shares outright is somewhat new, the concept itself has been around for a while and I've had DRIPs at multiple different brokers. I was even able to get fractional shares of high priced preferred stocks going for $1,000+ market per share.
There's a bunch of brokerages offering fractional shares, such as Betterment, Motif, M1, Stash, Stockpile, and others. Schwab has also announced they'll be adding it.
There's also DRIP (Divident ReInvestment Plan) plans, a feature brokerages offer to allow fractional reinvestment of dividends.
Not sure how it's actually implemented as a financial product.
Freetrade in the UK is planning offering this in the next few months I think.
Fractional shares through DRIP is something else really as you can’t purchase them directly.
I’d be interested to know how it works too, but it could be as simple as the brokerage buys 1 share when you ask for 0.5 then keeps the other half on the books, sells the other half to someone else.
>And is this something that exists outside of Robinhood?
I'd imagine similar to all of the other brokerage accounts that allow for fractional shares either via direct purchase or dividend reinvestment purchases. RH's competitor SoFi has had fractional shares for a while now, I would imagine it is set up similar.
But Robinhood will next year according to the announcement: Starting early next year, we’ll support Dividend Reinvestment Plan (DRIP) and Recurring Investments. Automatically reinvest cash dividends back into your stocks and ETFs, and schedule recurring investments
I'm not sure if you can buy fractional shares outright but all of my ETFs in vanguard contain partial shares as they are all set up to reinvest dividends.
Yes, I'm sure implementing this feature was as simple as modifying the ownership column in the database. How are dismissive, unthinking comments like this upvoted?
It was a tongue-in-check reference to the article I linked.
> Your share ownership consists of just a number in a database on Schwab’s computers, and if Schwab wants to make that number floating-point that’s Schwab’s business.
But let's not act like Robinhood is doing anything new, innovative or difficult here. Numerous other brokerages have offered fractional shares for the past decade.
Don't get me wrong, I love some of what they're doing....I just don't trust them with my money.