There is no way that Robinhood is worth this much money. I admire them, but $7 billion for 2 million customers is insane. I'm assuming they are targeting being the "Financial Amazon" for millenials, I'm just not convinced even if they achieved it it's worth this much. Stock trading is a dying business, and after the next stock market crash or recession, they will lose the majority of their customers. Moving into financial services might make sense, but I don't think these founders have the acumen to do this, as exhibited by their embarrassing attempt recently with their "checking and savings" account.
What Uber's IPO has shown is that VC funding is far too overly delusional. They buy their own bullshit about how growth trumps all but investors want profits and you won't see the real reaction until it starts trading for real, like Uber and Lyft. Until then, all you see is VCs talking their book and lazy tech writers repeating everything they say without actually thinking about it. So, sure some investors were stupid enough to invest $200M at $7B valuation, but I doubt Robinhood will grow into such lofty valuations that are reflected by the markets unless something drastically changes. 2M customers simply isn't enough.
All of those are more than just brokerages. They all have consumer banks (in the case of TD Ameritrade, a decent-sized one). Schwab manages their own mutual funds. Fidelity is one of the top providers of 401k services in the US (and also manages their own mutual funds).
Each of these companies is far more diverse than Robinhood, and their valuations are not comparable.
What prevents Robinhood from diversifying? They've figured out how to get a lot of customers fast. They're executing extremely well, IMHO, and that means they have many growth options. A team that can deliver a constantly improving product quickly for a huge customer-base is kind of unstoppable.
And, it is irrational to compare startup valuations to established companies. They're not the same category. If they were, we'd look at F and GM and wonder why anyone would ever invest in TSLA (though, that's maybe not a great example because I suspect F and GM are better investments than TSLA right now, but not because they are more diverse or whatever...but, because there's a lot of risk built into TSLA due to sloppy management). But, it's easy to find examples of old companies beating new companies that seemed to be stronger investments. Google vs. Yahoo, Amazon vs. Borders, etc.
Robinhood may be the biggest provider of 401k services in ten years. Or, they might partner with storefronts to offer banking+ services. Or, they might just keep bringing in new small dollar customers and eking out tiny profits by being more efficient; there's plenty of room at the bottom. Those other guys charge ten bucks a trade (or more)! You can bet all the people tucking away $100 from each paycheck don't want to lose 10% of it to fees right off the top. McDonald's doesn't make a lot of money from each customer, but they have a lot of customers.
I have an Ameritrade account that I've had for 25 years (well, it was Datek back then), and I have a Robinhood account. I stopped automatic withdrawals to Ameritrade a year or two ago, and now all my trading happens on Robinhood. It's just a lower-friction experience. If Robinhood goes public, I'll consider buying, because it's a good and novel product in a market with a lot of money changing hands.
On the other hand, I just closed my Robinhood due to their dishonest Savings "and" Loan debacle. Not that I don't think my money is safe (they are insured), but that they are pushing any and all areas to grow as much as possible.
> And, it is irrational to compare startup valuations to established companies.
Uhh, hate to break it to you but startups don't get "special valuations" because someone calls them startups. That's just not how it works. There's a little thing called "comps" that are used when companies get valued and no banker says "oh thats a startup so their valuation is different".
"Uhh, hate to break it to you but startups don't get "special valuations" because someone calls them startups."
Is this condescending tone necessary?
I was suggesting growth plays a large role in why startups are valued differently than established businesses, and I don't see how you can argue that a rapid growth company will be valued according to the same metrics as a company with very low growth.
> And, it is irrational to compare startup valuations to established companies. They're not the same category.
Is it necessary to be so matter-of-fact and imply that people aren't being rational (and thus inferior to your clearly rational point of view ). You're not wrong, the tone isn't necessary but I guess I was just following your lead.
You're not wrong about that, it was more dismissive than it should have been, though I'm not sure how else to express the idea I had in mind. Perhaps I should have instead said something along the lines of, "I value rapid growth startup companies very differently from established slow-growing companies." without expressing an opinion on whether that's reasonable or not. I'd guess everyone here can make an assessment about how growth is factored into company valuations.
Every generation will eventually "have the most money". The question that matters is "when?". Will they get the most money because they've earned it or because all prior generations have died off enough for them to inherit it.
I can't think of any mechanism by which wealth owned by the rich (i.e. old) can skip a generation.
The only way this proves to be false is if we eventually discover the secret to healthful immortality and end up with a generation that never dies, and therefore never bequeaths its wealth to younger generations. The longer people live, the longer it will take younger generations to inherit the wealth of older generations.
The only other way this proves false is if there is a massive wealth destroying event such as war, revolution, ecological collapse, etc. such that there isn't much wealth to inherit.
They're not, but when the boomers start to die (we'll they've already started but as the pace picks up), they'll be leaving a lot of wealth to the millennials.
I still have my Ameritrade account from 25 years ago (then Datek, which was, at the time, revolutionary), so I'm not even the obvious consumer of Robinhood services since there was friction for me to stop using Ameritrade and start using Robinhood, but I switched all of my investment activity over to Robinhood a year or so ago (still have some stock at Ameritrade, but I don't actively trade there).
> older people have the money, and they're not moving from the places they know and trust.
Their money is moving, because old people—at a higher rate than young people—become dead people, whose former money is then controlled by someone else, often younger.
Interactive brokers actually publishes its numbers every month. Currently at a mere 630k accounts. But a whopping $150 Billion in Client Equity, and the other metric this industry uses is DARTs or daily average revenue generating trades, which is close to 800k. Robinhood probably sells most of its flow to HFTs at lower than what IB charges on commissions and IB is valued at 3x or $22B
I'd imagine Robin Hood will sell insurance, their own funds, mortgages through a broker i.e. everything that those people need and would get anywhere else.
'RobinHood' is just a portal for sales to a generation.
Also, FYI, this name 'RobinHood' i.e. a brand created to make people think somehow they are 'good' (and all of their 'occupy wallstreet we wanted to do somethiong' BS) is laughable rubbish and kind of stain on a generation. Robin Hood is the same as anything else in a different config. Nike is not somehow 'moral' because they take some arbitrary stand on their billboards. They still pay people pennies to make shoes. It's a sad statement to think any of this marketing actually works. It's fine to 'want to do good' but if people can't understand that it's only 'talk' ... well, very naive.
The thing that is odd about Robinhood is how it's a myth that has evolved pretty dramatically in how it is popularly interpreted and understood.
Previously it was about a world where the productive class had their wealth usurped by the taxman and a man who took that money back to give it to those that produced that wealth.
Now it's interpreted as a story about a man that takes from the rich and gives to the poor. There is no longer any consideration for who generated the wealth in the first place.
Nowadays, your wealth still goes to either the taxman involuntary by threat of licit force by the state or to voluntarily people that provide you goods and services that you deem beneficial. The difference is the Robinhood now steals from the latter instead of the former.
These are always really interesting comments because it shows exactly what happens when one is reductionist- up to the point where it agrees with their pre-existing views. Taxation is theft- they're taking your private property! The legitimacy of property rights, however, is rarely questioned.
A common response is that property rights are obviously necessary- that society couldn't function without them.
The same argument, though, applies to things like taxation! "Obviously, we need some taxes just to keep society running- roads, water, firefighting..." isn't an uncommon argument from more centrist types, and that tastes exactly the same as "property rights are necessary for civilization".
The fact is, the moral authority of "I can kill you if you try to use this object, or enter this area of the world, which I call 'mine'" is just as worth questioning as that of "I can kill you if you try to use this object, or enter this area of the world, which I call 'mine'- unless you're authorized by a democratically elected, representative government, and we as citizens have collectively agreed that each of us must contribute towards the common good."
If taxation is theft, then killing somebody to defend or retrieve your property is cold-blooded, probably premeditated, murder.
> your wealth still goes to either the taxman involuntary by threat of licit force by the state or to voluntarily people that provide you goods and services that you deem beneficial
This voluntary-involuntary distinction is just sort of asserted without a lot of examination of the actual situation.
You're starving. Somebody else has bread for sale. You can buy the bread for an inflated price or starve. Is this voluntary?
Perhaps it is- even though in practice you had no meaningful choice, in that particular situation the best outcome for you comes from paying almost any sum for that bread. There's an argument there that you chose to buy it willingly, rather than starve.
You also have an option not to pay taxes! If you pay, you do so willingly. Yes, you'll wind up in prison, but- the best outcome for you comes from paying the taxes. You had a choice- you decided to purchase your freedom. This was voluntary.
In fact, assuming a rational actor, in this shallow definition, practically everything they do is voluntary- if a spy is being tortured and gives up some information, they did so willingly- after all, they could have continued to suffer. If you're being held up at gunpoint, you choose to hand over your wallet- you make the rational choice that losing some cash and having to cancel your credit cards is preferable to being shot.
Now consider one last situation- You're locked in a room, starving. There is some bread on a table. You go and try to eat the bread, but are stopped by a man with a gun. He will kill you if you eat it, he says, unless you pay him first.
Your options are to die by starvation, get shot, or pay money. Is your choice to continue to live and to pay the money a voluntary one?
And did you notice that this is the same situation as the first one?
"The legitimacy of property rights, however, is rarely questioned." To be fair it's questioned a lot.
In Canada, we made a new Constitution in the 1980's and the 'left party' was going to veto it if we included the specific rights to private property. Trudeau caved and so we don't have constitutionally protected rights to private property in the sense we might want. Though I don't think it's pragmatically much different from most nations.
To be a bit more clear, I was referring to specifically from a conservative, capitalist perspective (which makes sense, since capitalism does sort of require capital to be property.) Libertarian arguments that killing somebody who is taking your property violates the NAP, for example, are rare birds.
I'm not against taxes. Tariffs and excise taxes that pretty directly support the commerce enabling activities of the state are totally fair. Income taxes in particular are theft.
> The same argument, though, applies to things like taxation! "Obviously, we need some taxes just to keep society running- roads, water, firefighting..." isn't an uncommon argument from more centrist types, and that tastes exactly the same as "property rights are necessary for civilization".
FWIW there are a large number of places that to this day have an all-volunteer fire department, and there are places with private water companies and private roads. (And having an all-volunteer police force in the same spirit of a volunteer fire department is a thing more places should have -- and avoid all the trouble we get when the police think they're different than regular people.)
Of course, the places with private roads tend to have the road maintenance company end up looking a lot like a local government, in the sense that you either pay your share of the road maintenance or you can't use the only road to your home, which is coercive. But there is still a highly relevant difference in that the road maintenance company doesn't force you to buy into their social insurance programs and pay for their military excursions even if you don't want to. And if you decide you want to be a hermit who never leaves home and doesn't need roads, you don't go to jail for not paying for them.
The difference is the level of coercion that actually exists. Nobody is going to refuse to pay a reasonable road maintenance fee for their own local roads, because the value vastly exceeds the cost. But if the road company tried to claim that in order to use the roads you would have to give them your sons to die in their wars, you would tell them to eat sand and pay the cost of building new roads so you don't have to use theirs. Which, even though very expensive, puts an upper bound on the level of coercion you have to put up with.
That doesn't exist with a government. Even if their demands are completely unreasonable, they have the capacity to make your alternative worse.
> Your options are to die by starvation, get shot, or pay money. Is your choice to continue to live and to pay the money a voluntary one?
You're ignoring the possibility of buying food from someone else. The anti-government argument is fundamentally an anti-monopoly argument. If there is a private monopoly on food then that's just a de facto government which has seized power by controlling the food supply. But if there isn't a monopoly then no one can point a gun at you and force you to pay an arbitrarily large amount of money for necessities, because you can turn around and buy it from any of a hundred others who charge more reasonable prices. Or produce it yourself if you're so inclined.
Oh, I'm not so much arguing for taxes as I am rather rather sort of trying to examine the general libertarian argument that taxation is theft.
I don't even know what my politics are- not "i don't know what to call them" but "I honestly don't know what policies to advocate in general", though they're somewhere to the left of center.
> If the road company tried to claim that in order to use the roads you would have to give them your sons to die in their wars, you would tell them to eat sand and pay the cost of building new roads so you don't have to use theirs. Which, even though very expensive, puts an upper bound on the level of coercion you have to put up with.
This theory sounds good, but I've always seen no guarantee that this can happen in practice, for roads specifically. Space is finite, and roads owned by the fun new road startup can't cross those from the old evil monopoly- they don't own that land, and they're sure not going to get permission to use it to build their own roads! Tunnels are also right out (since if you own the earth under your land, so does the road company). You'd be left in a situation where no land vehicle could access your land - only aircraft. This is, probably, a very expensive situation.
So, while it sounds possible initially, at least for me when I consider the logistics of it, "build your own private roads competing with the other ones" works only in rural areas, and only for point-to-point, relatively short connections. If the Interstate Highway System was owned by an evil organization, could you build your own highway system? Probably not; at some point you'd just have to cross land owned by them.
How do you see this problem being solved in practice? Again, there's something silly about the whole thing, but I can't figure out how it'd play out myself.
> You're ignoring the possibility of buying food from someone else. The anti-government argument is fundamentally an anti-monopoly argument. If there is a private monopoly on food then that's just a de facto government which has seized power by controlling the food supply.
This is interesting, and seems somewhat valid. It does produce a sort of silly conclusion that if you meet a starving man and are his only source of food- say, you're up in the wilderness and he's a lost hiker- you now have seized government power, which doesn't make much sense.
My point, though, was less just "private monopoly bad" but "coercion can and does exist in capitalism in practice". Specifically, there are items for which demand is nonzero and extremely inelastic- an antivenom for the rare Hypothetical Scenario Snake's deadly bite is the only thing that can save you, and a monopoly or cartel could easily form in the pharma industry for such a thing. Given current IP law, which is essentially in the business of granting monopolies... that'd do it right there. But assuming IP wasn't around, you'd almost certainly wind up with a price-fixing cartel.
Now, everybody knows cartels are unstable- it's basic game theory. But there's a stabilizing influence- the "cartel game" is not played only once. Rather, it's more like the iterated prisoner's dilemma. As a group of pharma companies fix prices on drug after drug, they come to know each other better- undercutting the cartel, they know, would mean losses for them both, and they can develop trust that they won't themselves be undercut.
And specifically in pharma, where investments in manufacturing can be quite high, the threat of a startup who isn't trustworthy, entering the game is low.
All considered, these make the pharma industry, in the absence of regulation, prime for cartels to form. And these cartels would have, economically, no incentive to set prices for life-saving drugs lower than "whatever your life's worth to you".
So- in this sort of situation, if there were two people selling antivenom, both asking an exorbitant price, and the startup costs keep any competitor out (and remember, the potential new entrant knows quite well that they need to undercut the cartel to succeed, which means they'll be in a race to the bottom with two more-experienced competitors, which means they'll...probably not have a good time)... is the man bitten by the snake coerced to pay, or is his choice free? And have the pharma companies formed a government here? Does it govern anybody besides snakebite victims?
I'm quite interested to hear your reply- especially the stuff around how anti-government is fundamentally anti-monopoly. I often see the state defined loosely as "a legitimized monopoly on violent force", and I've always figured the critical part there was the "violent force". But is there some connection to monopolies in general? (Of course, the monopoly on violence itself isn't quite what we mean here- they're not "the only seller of violence", they're "the party whose violence is accepted by society"- it's not an economic thing in that context.)
That's a disingenuous interpretation which just bakes in your desired framework. What actually changed is that abstraction increases the disconnect between making money and generating wealth. Much of that parasitic "taxman" class now claims to be in the private sector.
Robin Hood long predates any kind of even basic economics.
Even those concepts you site a little tricky in 2029.
It's about as complex as a Tranformers or Fast and Furious film: ugly authoritarian tax guy takes money from people and treats them like crap, Robin Hood fights back. That's it. It's the ultimate in populism.
What Uber's IPO has shown is that VC funding is far too overly delusional
VC investors were perfectly logical. The people who get in early on a Ponzi scheme often make out like bandits. It’s the people who bought in the public market who were the bigger suckers.
> Stock trading is a dying business, and after the next stock market crash or recession, they will lose the majority of their customers.
Is there historical evidence to back this up on older brokers?
We've been in a ~10 year - largely unprecedented - bull market where you could throw darts and make money. Recessions usually destroy the returns of index funds and broad ETFs that millennials have been sold on. When the market's rising tide isn't raising every ship, picking ships becomes important.
If anything a recession should increase the number of retail traders because their index ETF is getting destroyed, but there are a handful of companies or positions that are flourishing. In the past, at least we've had advisors who while glorified salesman you can at least call and will get you to calm down. Now we're going to have a generation of retail investors watching their investments tank 20% across the board with only Robinhood support to tell them to calm down? Is that going to be enough to stop them from liquidating their ETF and taking a more active role investing in recession-safe companies?
Beat, net of fees. The goal of almost any managed fund is to extract the maximum amount of depositor money via fees. If you beat the market, raise your fees. If you don't, say it's because your investments are counter cyclical and lower risk, and keep charging your fees.
Professional fund managers are struggling more and more to find alpha, do you think it's going to get easier for the newbie retail investors Robinhood attracts?
I look at the individual trading industry like online poker. There are lots of people who lose money playing poker online, yet it is still a huge industry with new suckers joining everyday. People are addicted to gambling even if they have no edge and lose money. It is the same with trading. Just look at the subreddit /r/wallstreetbets.
What Uber's IPO has shown is that VC funding is far too overly delusional. They buy their own bullshit about how growth trumps all but investors want profits and you won't see the real reaction until it starts trading for real, like Uber and Lyft. Until then, all you see is VCs talking their book and lazy tech writers repeating everything they say without actually thinking about it. So, sure some investors were stupid enough to invest $200M at $7B valuation, but I doubt Robinhood will grow into such lofty valuations that are reflected by the markets unless something drastically changes. 2M customers simply isn't enough.