Robinhood, robintrack.net and Retail
You most certainly by now have heard of Robinhood, the innovative retail brokerage firm focused on millennials that was founded by two Stanford roommates in 2013. Robinhood offers an easy-to-use app which allows its customers to invest in stocks, including fractional interests, on a no-commission basis. I recently came across another website – robintrack.net – which tracks the number of account holders for each stock on the Robinhood platform, using data provided by Robinhood. I thought this would be interesting to study because my perception was that Robinhood and similar no-commission brokerage platforms targeting millennials might be a significant contributor to some of the unusual and rapid appreciation in stocks which I have written about in emorningcoffee.com before (here), all a part of the growing popularity (and success) of momentum investing. By momentum investing, I mean buying select stocks that, as they increase in price, draw in more and more buyers, pushing the price even higher. The rapid upward trajectory usually causes the price of the stock to become quickly divorced of a company’s underlying fundamentals, although it matters little to momentum investors whose investment philosophy is simply “the trend is my friend”.
Having sat on this concept a couple of weeks, I saw an article in #Bloomberg over the weekend entitled “Robintrack, Chronicler of Day Trader Stock Demand, To Shut”. So rather than let this topic fade away along with data on robintrack.net, I thought I would quickly aim to finish this article since Robinhood is apparently going to discontinue sharing its stock trading data with third-parties like robintrack.net. My reason for wanting to look at this data was to try to better understand if the rapid ascent of some stocks might in fact be caused by frequent trading in small lots by retail investors on platforms like Robinhood and E*Trade. Before looking at the results and trying to draw conclusions, let’s step back and take a quick look at Robinhood and its position in the U.S. retail brokerage industry.
Robinhood, founded in 2013, is one the best known on-line brokerage firms focused on stock trading through an app, with the other well-known platform probably being E*Trade, a more comprehensive and complete brokerage service. E*Trade is in the process of being acquired by Morgan Stanley in a $13 bln transaction announced in February 2020. You can find a decent comparison of these two firms here, via Investopedia. There are other traditional and more established retail brokerages, too, like Charles Schwab, TD Ameritrade and Interactive Brokers, but none have received the same amount of press coverage as Robinhood since the post-pandemic lows in March.
Robinhood began operations in 2015 by marketing its platform on the basis of no commission trading for its clients. Although not the subject of this post, should you be wondering how Robinhood and other “no commission” brokerage firms make money, it is generally through a combination of: interest spread on customer cash balances (since Robinhood and most other brokerage firms do not pay interest to customers on their cash balances); bid-ask spreads on stocks, ETF’s, mutual funds, and other offerings; margin lending; lending out customers’ securities; fees or commissions on higher valued products like gold or cryptocurrencies for example; and offering add-on or other ancillary services to customers. According to several articles I read, Robinhood had around 10 million account holders at the end of 2019 and has added 3 million new customers since then. The estimated 10 million customers at Robinhood at the end of 2019 compared to 11 million at TD Ameritrade and 4.9 million at E*Trade at year-end. The median age of a Robinhood account holder is 31, and the average account size of the portfolio is in the range of $1,000 to $5,000.
Some of Robinhood’s notoriety might be self-inflicted, caused by the fact that the company chose to openly share its stock activity data, which served as the genesis of course for the creation and popularity of robintrack.net. This data was increasingly viewed by investors and financial pundits, as they sought to attribute the rapid recovery in certain stock prices since pandemic lows to the growing swath of “unknowledgeable” retail investors piling into names without fully understanding the risks of doing so, and not having an understanding of the fundamentals of companies in which they were investing Robintrack.net tracks the number of holders of each stock on the Robinhood platform. The“Leaderboard” table below was downloaded from robintrack.net, and illustrates the top 100 most popular stocks on the platform as measured by customers which hold the stock as of this morning (August 11th).
Even more important than a static position is the trend. In this respect, robintrack.net provides historical holders information for each stock over time, and by clicking on the name, you get a simple graph depicting the price per share on the left axis and the number of investors holding the stock on the right axis. Here’s an example for Ford (F), the most popular stock on Robinhood.
As the graph illustrates, when the price of Ford more than halved in a matter of weeks in March, more and more Robinhood account holders began buying the shares. In most cases, similar graphs for other companies support the relationship between certain stocks appreciating quickly in volume and users of the Robinhood app piling into those very stocks. I am not overly surprised to learn this of course.
The ranking of stocks by popularity caught me off-guard, as I was expecting much more early stage and / or speculative companies and momentum stocks to be at the top of the leader board, since it is many of these stocks that have fuelled the markets rapid recovery since the CV19-inspired March lows. However, I discovered is that the investors using Robinhood are much more focused on a combination of deep value stocks, many of which fell and remain out-of-favour at the moment, and also a fair number of expensive but arguably not (as) overvalued large cap tech names (e.g. FAANG+M). As you see in the table above, the top five stocks traded on the platform (in order) are Ford, GE, Apple, Microsoft and American Airlines. Troubled transportation sectors like airlines, and holiday companies like cruise ships, in fact feature prominently, with the likes of American Airlines (AAL), Delta (DAL), United Airlines (UAL), Carnival (CCL), Norwegian Cruise Lines (NCLH) and Royal Caribbean Group (RCL), all featuring in the top 30. This illustrates the appetite amongst retail investors for the most troubled pandemic industries that might one day pop upon good news about a vaccine or end of the pandemic. The company I expected to see at the top of the list – Tesla – was only 8th, whilst two others I wrote about recently – Netflix (27th) and Zoom (93rd) – were not that popular with Robinhood accounts even though their post-pandemic price action has been very strong and their valuations rich.
#Bloomberg wrote another article yesterday entitled “Robinhood Blows Past Rivals in Record Retail Trading Year”, and this is also worth a read because it compares the daily average
revenue trades across competitive platforms. There are some nuances and inconsistencies as to how this data is calculated, especially for no-commission shops, and if you want to read more about this, then Investopedia is again a good source here. The table below shows the DART data for the top five U.S. brokerage firms for June, keeping in mind that some firms track commission-only trades and others, like Robinhood, now include all trades. Still, the differences in volumes are very material.
Robintrack.net is a website, similar to shortsqueeze.com, that I would have highly recommended that you check in on from time to time because both are data points for technical trends that can help explain a stock’s movement, especially when fundamentals look detached from the price. However, robintrack.net will become less relevant once Robinhood stops releasing its stock data to third parties, which is apparently imminent. Still yet, I learned an important lesson in that retail seems to have a much broader influence on investment strategies other than just momentum “of the moment” sectors like tech and healthcare. The focus of Robinhood customers is not solely on well-known momentum stocks like Tesla and stay-at-home companies like Zoom Communications, but also reaches into deep-value names and sectors that are currently out of favour but which might one day represent attractive valuations when the world is more normal again, post CV19. This does not mean such buying is not speculative, because almost all of the largest holdings involve either high risk companies in transition (often turn-around / execution issues or troubled sectors) or hard-to-support valuations for growth names. Retail’s influence is more far reaching than just fashionable momentum stocks.