November 16, 2022 • 47 mins
Robinhood aims to make investing friendly, approachable, and understandable for newcomers and experts alike.
Although trading is free for the user, Robinhood makes a small amount of money for every single trade made on the app. The more you trade, the more money they make.
So is making investing free through an app the same as democratization?
Show Notes
- Read Devin Mills’ paper assessing the association between trading cryptocurrency and problem gambling.
- Haley Sacks has a 'wealth’ of free resources and investing courses on Finance is Cool.
- Learn more about investing with Charles Rotblut’s book: Better Good than Lucky.
- Special thanks to James Royal for his contribution to this episode.
This episode uses the following tracks from FMA under a Creative Commons Attribution License: “Assignment” by BoxCat Games, “Day Bird” and “Calm The Fuck Down” by Broke For Free, “Another beep beek beer please” by Rolemusic, “Feels Good 2 B” and “Fat Caps” by Jason Shaw.
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:08):
The legend of Robin Hood begins in the Sherwood forms,
with rob and his merry men reappropriating taxes unjustly collected
by the evil Sheriff of Nottingham. Yeah, ah, sorry, wrong,
Robin Hood. The story of this robin Hood begins in
(00:34):
New York City, where two recent Stanford graduates, Vladimir Tenev
and Baju, bought toil Away, building software for high frequency
traders on Wall Street. Inside their office, computer's home and
keyboards click while outside. I'm here myself as a free individual,
(00:56):
to humanize the markets and to make Wall Street here
the sound of what democracy means. Inspired by the Occupy movement,
to help bridge the economic divide and democratize finance, Tenefan
Bott designed an app that let anyone access the stock
(01:20):
market for free, and they named it after everyone's favorite
egalitarian outlaw, Robin Hood. Welcome to Calling Bullshit, the podcast
about purpose washing, the gap between what an organization says
(01:41):
they stand for and what they actually do, and what
they would need to change to practice what they preach.
I'm your host, Time Montague, and I've spent over a
decade helping organizations define what they stand for, their purpose
and then help them to use that purpose to drive
transformation throughout their business. Unfortunately, at a lot of institutions today,
(02:04):
there's still a pretty wide gap between word and deed.
That gap has a name bullshit. But, and this is important,
we believe that bullshit is a treatable condition. So when
our bullshit detector lights up, we're going to explore everything
the organization should do to fix it. Robin Hood's purpose
(02:35):
is to democratize finance for all. They say. Their aim
is to make investing friendly, approachable, and understandable for newcomers
and experts alike. Employing a business model called payment for
order flow, robin Hood makes investing free to users and
just as easy as downloading a game onto your phone.
(02:58):
And the app doesn't just provide access to the traditional markets.
In June, robin Hood leveled up to include commission free
crypto trading, making bitcoin, ethereum, and other tokens available to
just about anybody. However, as popularity and download numbers grew,
so did criticism. Massachusetts regulators are accusing robin Hood of
(03:22):
what they call aggressive tactics in marketing inexperienced investors, using
gamification to manipulate those customers and failure to prevent outages
on that trading platform this year. In one example, robin
had allowed a Massachusetts user with no experience to make
more than twelve thousand trades in just six months and
(03:43):
to complaint this morning. The state highlights robin Hood's revenue
model of payment for order flow. This is a key point.
Payment for order flow is how robin hood makes money.
Even though the app itself is free to users. Individual
investors don't have to pay to trade because big trading
houses called market makers give robin Hood a small amount
(04:05):
of money for every single trade that's made on the app.
The more you trade, the more money they make. That's
the misalignment that drives the entire conundrum here. Robin Hood
wants people to trade. It's absolutely in the worst interests
of clients. The more you trade, the more likely you
are to lose money. Study after study has shown that
(04:29):
buy and hold is a much better investment strategy, and
critics and lawmakers raised the red flag, saying robin Hood
was designed more like a game in order to hook
first time investors and then capitalize on their inexperience. Regulators
also point to incentives like confetti popping up on screens
(04:50):
after trades and offers for robin Hood customers who are
more active on that app to move up on waitlists
for new products. In an attempt to quell the backlash,
robin Hood actually changed some of their graphics, but critics
were unimpressed. It's absolutely gamification. They have leaderboards, you can
win points, they have competitions on on on the site.
(05:13):
The only thing that they've removed is that you don't
get confetti now on your screen when your stock goes up.
You know, the robin Hood's big claim to fame is
that they've democratized access to finance, But I think they've
democratized it the same way that Purdue democratized access to oxycontent.
Simply making something easier to buy does not mean that
it is there for a good idea to buy it.
(05:35):
But robin Hood continued to allow anyone the freedom to
buy whatever stock they pleased until the game stopped fiasco
in early because being sort of built by the people
who are doing it as a David versus Goliath thing, Right,
So you have this army of small traders who are
using a Reddit message board called Wall Street Bets, and
(05:55):
they're putting pressure on the short sellers of game step.
This looks like a move by an outfit called robin Hood,
which is supposed to be taken from the rich and
giving to the poor, and doing exactly the opposite. The
action is so wild that t d amritraded robin Hood
have restricted trading of these stocks. Traders on Rabbits sent
the stock soaring this week, causing billions in losses for
(06:16):
the hedge funds that been against the video game retailer stock,
and today Wall Street decided enough wasn't enough. Declaring certain
stocks off limits made the platform look ominously undemocratic, and
while the app makes complex transactions frictionless, understanding those transactions
(06:42):
can be really hard, especially for beginners. This lack of
clarity can have terrible consequences. The most tragic of these
occurred in twenty twenty when Alex Kerns, a college student
from Illinois interested in investing, was granted approval by robin
(07:03):
Hood to trade options, a very risky thing for even
professional investors because of the interface. He mistakenly thought he
owed seven hundred and thirty thousand dollars that he didn't have,
and he wound up taking his own life. The note
he left, said I had no clue what I was doing.
(07:25):
The Financial Industry Regulatory Authority said that robin Hood had
quote failed to exercise due diligence for years. When approving
options trades, they find robin Hood seventy million dollars, the
biggest fine in the authority's history. This and a lawsuit
by Alex Kern's family were finally settled just before robin
(07:47):
Hood went public in the summer of one. Robin Hood
says their purpose is to democratize finance for all, to
make investing friendly, approachable, and understandable for newcomers and experts alike.
But he's making investing free through an app the same
(08:07):
as democratization. It feels like gamifying the stock market is
almost making it too easy. Researching this further, I found
just the person to help me understand the intersection of gamification, investing,
and gambling. So I called him up. Folks, I am
(08:28):
excited to introduce Dr Devin Mills. Devin, thanks for being here,
and uh, welcome to calling bullshit. It's great to be
with you, Tie. So before we get into robin Hood,
I'd love it if you could just tell us a
little bit about your background. And the work that you do. Sure. Sure, so.
I'm an assistant professor at Texas Tech University in the Community,
(08:51):
Family and Addiction Sciences department. My research is on non
substance use disorders, primarily video gaming and gambling, and with
regards to gambling, I also look at cryptocurrency trading and
risk taking behaviors in the financial markets, looking at it
from the behavioral side of things, trying to understand exactly
how people can become obsessed with it, how people can
(09:12):
start to internalize more of a problematic trading pattern. M fascinating. Okay,
would you take a run at defining that word for us? Gamification? Sure?
I think the simplest way of defining it is to
employ game design to an area that doesn't necessarily have games.
You could not say that we're gamifying the NFL, for instance,
(09:35):
the NFL football is a game that wouldn't necessarily so
that wouldn't work. But gamifying learning in a way that
is something that education has done. And my understanding is
that's kind of the roots of gamification has been in
the education domain, right and and so the point of
it is to essentially make the subject matter stickier, more engaging,
(09:57):
more uh, fun all of those things, getting someone interested
in the topic area and making it more of a competition, um,
giving someone an objective a quest. But there's also the
gamification in terms of the rewards piece, and I think
that's where a lot of the literature, a lot of
the mainstream media has kind of focused more, especially as
(10:17):
it as applies to some of these mobile applications. Is
the idea of rewarding individuals for training behaviors, as applied
to robin Hood in terms of badges and whatnot, kind
of the Boy Scouts mentality of uh, keep on awarding
individuals for their acts of service and their acts of knowledge. Yeah,
let's turn to robin Hood. Would you say that the
design of the robin Hood app is gamified? They used
(10:40):
to have the confetti once you made a trade, um,
whether that was selling or buying. I haven't seen a
lot of rewards. It doesn't necessarily mean that individuals don't
feel rewarded in some way, So confetti would be an
example of a kind of gamified aspect of the app experience. Yeah,
but I would also I think the the idea that
(11:03):
that's the only way in which humans interpret a reward
is kind of a misnomer, right when their portfolio is
going up a hundred dollars two hundred dollars, or maybe
it's going down two dollars. I think the human brain
will interpret that as something to chase, something to continue.
I wonder, like our human beings all equally susceptible to gamification,
(11:28):
or are some people more likely to be seduced than others?
I would say it usually depends on the task. If
you are an individual who is completely averse to any
risk whatsoever, the idea that gamification by itself could get
you to do something that you wouldn't otherwise do I
(11:49):
haven't seen any research to suggest that gamification is that strong.
So you're an expert in gambling and gambling addiction, Robin
Hood says that investing is not gambling. Um, but I've
noticed that in some of your work you point out
that there seems to be a correlation between investing, particularly
(12:10):
investing through a smartphone, and risk taking behavior. So I
wonder if you could unpack the relationship between gambling and investing.
How are they different and how might they be the same.
When we think about gambling, we immediately assign a level
of risk. When we think about investing, we imply almost
(12:32):
a strong chance of return, almost eclipsing this idea of risk. Yeah,
it sounds responsible. I'm an investor or. Yeah. You have
your friends saying well, that's a gamble versus well, that's
an investment. You know, that has different ways in which
we interpret that, But I I go back to the
basic definition. Gambling is risking something of value, primarily money,
(12:54):
on the chance of an outcome. Uh that should result
in individuals earning more money in return. That's gambling. And
so based on that definition, I find it really hard
to see stock trading, crypto trading in particular, to not
be some element of gambling. Now that being said, I
(13:15):
do encourage people to take charge of their wealth. I
encourage people to learn more about the stock market, but
I also think there needs to be uh, some clarification
on the terminology. In my mind, if you're buying stocks,
you are gambling, but you're maybe gambling more responsibly or
less responsibly, and that's a variation of investing. One of
the other aspects of the app is that it makes
(13:36):
investing social. Does that make the app stickier? So I
would I would go back to our gamification question. Do
they have to have a gamification piece if so many
people are going to be bragging about it, sharing their gains,
sharing their losses on Wall street bets. If there's a
strong enough social community, does it have to have rewards
(13:58):
in order to increase participation? I think right now the
research isn't there yet, but generally speaking, when we look
at motivation in other areas, we see that the social
component is very very strong. Right. It seems to me
that people who who enjoy the feeling of risk, uh,
would be more likely to become addicted by gambling. Is
(14:19):
that doesn't right? Definitely? Yeah. You have to be interested
with uncertainty, you have to be okay with that, you
have to enjoy the rush. There's a little bit of
research on the fear of missing out. That idea as
well is quite prevalent. We've started to play with this
concept of individuals feeling like they're missing out on the
(14:39):
rewards that other people are experiencing, and that seems to
be contributing also to individuals taking greater and greater risks
and trading more problematically than they otherwise would. And so
that would be you know, again, the sort of social
aspect of it. You have you're doing it in public,
and you're watching other people presumably either make or not
make money, and and you kind of are judging your
(15:02):
own um success or failure against that of others. Like
that's got to have an effect on on the stickiness
of the platform for certain people. Definitely. Yeah, And this
is something I'm just thinking about in the midst of
our conversation. Is the idea that is this social piece
adding to individuals experience of FOMO. So it's amplifying their
(15:23):
FOMO and that's what's contributing to their greater risk taking
on the app um. So there there's definitely a role.
There's definitely a cycle that I can I can see
from a theoretical perspective. Um, and I'm not exactly sure
what breaks that cycle. Yeah, And robin Hood says, so
I'm just gonna quote there from their purpose. They say
their purposes to democratize finance for all. We believe that
(15:47):
everyone should have access to the financial markets. So we've
built robin Hood from the ground up to make investing friendly, approachable,
and understandable for newcomers and experts alike. And if you
have a great purpose, and we think robin Hood's purpose
sounds great, is you have to actually do it right.
And one of the actions that they could take is
(16:09):
do a better job of educating people. Are there other
things that you think robin Hood could or should do
to make the app align better with their purpose and
and not be as potentially dangerous. I do. I think
there's ways in which to have a cool off period
if someone is trading quite erratically. Uh. Robin Hood has
(16:32):
and just like any other brokerage out there, has access
to a ton of data on their interesting and how
they trade. And this has been something that actually I'm
borrowing from the gambling literature. Right now, we have quite
a few tech companies developing applications that can track how
individuals are gambling, how many bets they're making per minute,
are they escalating, are they acting in a very erratic way.
(16:54):
Robin Hood has to be acting in good faith with
regards to protecting its consumer versus protecting its business um
and so that needs to be uh, something that needs
to be drawn out. Binance actually supposedly I don't have
a Binance account, but they have on their website a
responsible trading platform, and they do have some of these
pop ups that say, you know, we're seeing that you're
(17:16):
elevating your risk, you're increasing your risk position. Uh, you're
trading quite a radically, you're buying quite a bit. Maybe
it's time to chill out, basically, to take a break. Uh.
They do actually put holds on people's accounts. Uh, definitely,
based upon whether or not they're over there, over extended exactly.
And finance is a crypto platform, So let's talk about
crypto because you can buy crypto now on the robin
(17:39):
Hood app as well. Do you see investing in crypto
as more similar to gambling than traditional investing since the
value of cryptocurrency is in most cases based more on
faith than on any kind of hard asset. Crypto does
not have a fundamental asset. There's a lot of belief.
(18:00):
The short answer is cryptocurrency trading is gambling. Is gambling? Right, Yeah,
Just again, in the spirit of fairness, UM, we should
point out that and I think you mentioned this earlier on,
but I just want to make sure we get this
on the record that to be fair to robin Hood,
they have responded in at least one tangible way to
the accusations that they are gamified. You know, before the
(18:22):
I P O one, they replaced the confetti with some
kind of new animation, and what they said about it
was the confetti distracted from the goal of the app,
which is to make regular people, everyday folks who have
been kept out of the market feel like they can
participate and feel like they're being positively reinforced for taking
steps in their financial life. So, you know, people people
(18:47):
noticed the confetti, people didn't like the confetti. They have
addressed the confetti. How meaningful a change would you say
that is you feel like that's enough? I would say
that it is start to better serving their consumer, recognizing
that it wasn't in the mission. It wasn't actually increasing
(19:08):
or the democrazation. It was adding more maybe fun to it.
I don't know how many people really cared about the confetti,
um right, and so it hasn't changed much. I think
when I'm looking at their statement to democratize finance for all,
I would love if they also not just democratize it,
but increase knowledge. Yes, And I think once you go
(19:29):
down that road, you're starting to really protect consumers and
you're starting to increase and democratize finance for everybody totally.
And you made the point about the gamification of education.
You could gamify that aspect of the app and make
it so essentially to unlock different layers of features, you
had to demonstrate certain levels of of knowledge. Right, essentially
(19:52):
you have to take a quiz in order to unlock
the options feature or the margin feature. Um, you would
you that people would work at internalizing that information, remembering it,
understanding it, and applying it. And uh, I completely agree.
It would actually do a much better job of helping
them achieve their their stated purpose, which is, you know,
(20:14):
to my mind, a really good one. I think that's great.
And I was also just thinking you why not you know,
create something like a diversification quotient that a simple trader
can look and say, well, how diversified am I? Oh look,
here's a number up here. What does this number mean?
Or what about a risk quotation? How risky have I
been trading? How risky is my is my overall portfolio?
(20:34):
How how open am I? That's one of the reasons
why people join these brokerages is ordered to gain access
to some of this information. And to your point, they've
got tons of data. They have tons of data about
people like you, and if it were an anonymised, right,
they would they would know when you're showing signs of
(20:56):
getting yourself in trouble and they should flag that to you. Um. Yeah,
So it seems like there's much more that they could
be doing as I as I really think about it, Um, Devin,
we have a tool on the show we call the
BS score, and what we're trying to do is measure
the gap between word. Indeed, our scale goes from zero
(21:17):
to one hundred, zero being the best, zero bs on
being the worst. Total BS. So robin Hood says their
purpose is to democratize finance for all and that they
believe that everyone should have access to the finale financial markets.
So they've built robin Hood from the ground up to
make investing friendly, approachable, and understandable for newcomers and experts alike.
(21:42):
What score would you give them? Um, I'm gonna give
it a fifty five out of possible one. I look
at their mission statement and I see that the democratization
it really has nothing in their about necessarily keeping people
safe from harm or educating people, trying to just make
sure it's accessible, uh, and democratizing making sure everyone has
(22:05):
access to these markets. It seems like that's something that
robin Hood has accomplished, but that's not necessarily without some consequences.
I want more from robin Hood. I think robin Hood
could be a great company that really doesn't just open
the doors, but also sits people down and says, here's
how you can do this more effectively, here's how we
(22:25):
can make you more effective in your trading. It's something
that I think robin Hood could actually achieve um and
be really fire its namesaked, really trying to build people up.
So that's where I see it as it stands right now. Yeah,
I love the thoughtfulness of that score. And I want
to thank you for being being on the show and
taking the time today. Thank you very much, Hi, It's
(22:48):
been great, So to be fair. Gamification doesn't take away
a person's free will or absolve them of responsibility for
or decisions. But robin Hood still turns the stock market
into a dangerous game, and given their business model, they
don't have any incentive to change. The more I learned,
(23:11):
the more concerned I am about the harm that robin
Hood can do. But we're not here to just curse
the darkness. It's important to light a few candles as well,
so we'll get into some ideas to fix robin Hood
right after the break, Folks, it is time to talk
(23:36):
about actions that robin Hood could take to better do
their purpose of democratizing finance for all joining me today,
we have two extremely qualified experts. First up, I'm really
excited to introduce Hailey Sacks. Hailey, thanks for joining us
and welcome to calling bullshit. Thank you so much for
(23:57):
having me. I'm excited to call bullshit and Haley for
the listeners. Could you tell us a little bit about
your background. Yes, So, I'm Haley, otherwise known as Mrs
dow Jones, and I was the first financial influencer fantastic,
and I want to introduce Charles road Blood. Charles, thank
(24:18):
you for joining us today and tell us a little
bit about your background as well. Sure, I'm a chartered
financial analyst. I work with the American Association of Individual
Investors AI and among the things I've created there as
our prison wealth blooding processes is really about taking your
goals and having those drive all of your savings and
(24:39):
investing decisions. Okay, so let's jump right into some ideas. Charles,
I'm gonna ask you to go first. In two months,
or less. What's the one thing that you would change
about robin Hood to better do their story? Well, I
think they need to focus on long term investing, and
given that they're an app based broker um, I think
(25:00):
it'd be great if they could actually gamify the process
of long term investing, give points or give rewards to
people who set up automatic deposits, to people who pick
an allocation and stick with it. And there's things they
can do like great leaderboards. Uh, this person's increased their
automatic contribution, this person has gone x days without looking
at their portfolio balance, a little things like that which
(25:23):
would really encourage people to think about investing for long
term and most importantly gets them in the habit of
not being reactive and not constantly wanting to trade and
turn over their portfolios. Hmm. I think that's a really
interesting idea. Haley, what do you think about that idea?
I'm like enthusiastically nodding. You guys can't see because the podcast,
(25:46):
but that's pretty much my dream app. Yeah. I guess
the only question I have about that is is sort
of um business model? Right? Because right now they make
money using some and called payment for order flow, So
the more you trade, the more money they make. Essentially,
it would definitely be a seismic shift about the revenues
(26:08):
come from payment for order flow and most of that
from options and from crypto. So it would require a
big shift and their business model. But I think it's
questionable how sustainable their business model is right now, given
that we're already saying trading volumes dropped because the market's
been down. Yeah, I agree, it doesn't feel sustainable all right,
(26:32):
So great idea. Thank you, Charles Haley, your turn. What's
the one thing you would tell uh CEO of lad
ten of to do differently to get robin Hood back
on track. You mentioned at the beginning of this that
robin Hood is here to make investing easy and democratize it,
and it almost feels like right now they've given everyone
(26:56):
the ingredients to cook with, but with no cookbook. And
so I would really like to see them and force
uh financial literacy course or some sort of quazz that
you have to go through before you tread um, just
to ensure that their users actually understand what they're doing.
(27:21):
We all want to be intuitive cooks, we all want
to be intuitive investors, but you know, rarely does it
actually work out. Yeah, I hear that and and agree.
So all right, it's it's my turn, and maybe not surprisingly,
I am hunting in in similar ground with with my idea.
You two are the experts, obviously, but you know, Robin
(27:43):
Hood says their goal is to make investing friendly, approachable,
and understandable, and my biggest beef with them is that
they've made investing friendly and approachable, but they've done a
pretty terrible job of making it understandable. So my idea
is to de gamify the investing aspect and instead gamify
the education part of the app and make it so
(28:05):
I earned points for reading and passing quizzes to unlock
functionality in the app, and don't just drop me in
the deep end, right, make a point system that creates
friendly competition among users and kind of encourages me to
be the smartest and wisest investor, so, you know, hopefully
making learning to invest well both social and interesting. Part
(28:26):
of the education could also explain the business model to people,
which right now is you know, currently buried in the
terms of service, so people actually understand that there's no
such thing as free, that that that that actually the
app because of its business model is encouraging them to
do things that are not necessarily good for them as investors.
(28:48):
I actually don't mind if they keep the ability for
people to invest like willie nilly, as long as it's
just really clear. But I don't need them to h
to change their business model, like I want them to
(29:08):
add to it. And then if you choose not to
do that, like you said that, it's like very clear
in Layman's terms. Okay, here are the risk that you're taking. Yeah,
it just seems like transparency. Yeah, right, So I just
want to add I get curious. I sent up for
Robin Hood, I guess earlier this year last year, and
(29:29):
I got approved the trade options probably within five minutes.
And I understand options, but they had no idea who
I was. And you know, if I was a novice
and more talking about education, I would have no idea
how deep will pull I'm walking into blindfolded. And I
think people are signing up and during social media or something,
(29:49):
they think, oh, let me go buy options on game Stop,
not having any understanding of what exactly it is they're buying,
much less the risk involved. Yeah, I was I was
reading uh just this morning, just to to you know,
kind of refresh my memory about the young man who
he was trading options and um, the app told him
(30:11):
that he owed seven thirty thou dollars at the end
of some trade, and and in in a note that
he sent to his parents, he pointed out that he
didn't have a clue how to you know, trade options
or what that actually even meant. And so in some
cases the results are are literally deadly. Yeah, it's extremely
a risk, especially when you start talking about margin debt.
(30:32):
That's where people can really lose a lot of money
versus that they just you just use a cash account,
then whatever is in any account, if that's gone, that's got,
that's gone, it's gone, right. But this case, you're basically
gambling on a credit card. And I think it's difficult
because people think, oh, well, this is going to be
the trade that gets me out, and so then they
keep trying and trying. And I mean it's a tale
(30:55):
as old as time. Um that that makes me wonder.
I'd love to hear what both of you to about
about crypto. Like crypto in particular feels like it's in,
like it's out at the edge of speculative um for
for investors how do you view that space. I think
that it's okay to be excited about cryptot to think
(31:15):
it's cool, But that doesn't mean that you have to
like make bitcoin your whole personality. Don't go all in Charles,
what's you're taking. I think the blockchain technology has a
lot of interesting a lot of upside, But I think
it's important to separate crypto from blockchain, and crypto itself
is a currency. I still can't go in my local
(31:36):
grocery store with bitcoin or ethere um and buy a
loaf of bread, and so there's a huge network effect
that crypto has to overcome. But whereas you look at blockchain,
we see JP Morgan's actually working with it too, spirit transactions.
There are a few other areas that I'd love to
explore with you, but I wanted to start out with
(31:58):
something that's Scott gallow Way said he said some funny
and mean things about about Robin Hood. Yeah. One thing
he said is I believe these guys are mendacious. Fox.
The company's mission to democratize finance for all is similar
to Pablo Escobar saying his mission was to democratize cocaine
(32:20):
um and and you know, humor aside. This idea that
he's poking at, that that democratizing something is automatically good
is deeply questionable. I would say, yeah it is. And
I'll make an analogy here. I'm running at the Chicago Marathon,
and my time will be against some of the best
(32:43):
marathon runners in the world, and obviously my time will
be much slower, but that doesn't harm me. Why walk
in the wall street. I'm taking my knowledge against everybody
else involved, and there's a bunch of very skilled people
with a lot more data and a lot more speed,
uh the average individual investor, And so individual investors really
(33:04):
have to play that long term discipline game to have
an advantage. But Robin Hood encourages this fast trading, this
concert turnover, which is exactly the wrong thing an individual
investor should do. Yeah, I mean, that's it's a very
interesting point. There are not a lot of situations where
(33:25):
to use another sort of sports analogy, like where you
play against professionals right out of the gate. You know,
in football, there's peewee football, and then there's grade school
football and high school football and college football, and then
there's the NFL. But in investing, like they tell you
to strap on a helmet and you're playing against NFL
(33:48):
players right out of the gate, playing against professionals. But
like in golf you would have the handicap. In investing,
you can also have a handicap. It's called not picking
individual stocks, right, Yeah, And I think a lot of
people don't really know that. So just another another area
of inquiry, you know, robin hood is is racking up,
(34:12):
you know, a bunch of data about each individual user.
One other idea that occurred to me was just what
if the app told me what my risk profile was
as an investor, right and and told me literally you're
in the red, or you're in the yellow, or you're
in the green in terms of the risk that you're
(34:33):
taking based on your investing behavior. Robin Hood could reach out.
There's these behavioral sciences, whether it's Richard Taylor who won
the Nobel Prize, marriage statman, Robert Schiller. Um, I'm sure
they would have some great ideas about how to use
the data to actually create a more sustainable, better app.
But again it's a shift in business models to shift
(34:54):
in thinking. Uh where you know, robin Hood, despite what
they say, uh, they're all really is to maximize profits
and not worry about what they're breaking. Um. And it
is that culture of let's not worry what we break. Uh,
that can cause a lot of damage. Do other of
you have any thoughts on the name Robin Hood? You know,
(35:16):
Robin Hood's namesake was a thief with a twist. He
stole from the rich and gave to the poor. Does
the Robin Hood app live up to that story? I'd
say it's the opposite. And you just look at their
SEC documents. Um. I mean they're primary source of revenue
is running orders through market makers, so they're taking the
orders placed by small investors and out of every trade,
(35:39):
they're directing it to specific market makers versus trying to
seek the absolute best execution price. And the investors training
Robin Hood's platform are paying for that, so they're not
they're doing exact opposite. Yeah. Yeah, that's a little dark.
Actually it's GDS. Obviously it's so misleading from a marketing perspective.
(36:05):
I'm like, well done, Sadly, somebody somebody smart. Yeah, I
could say Mr Burns in the background. Excellent, Yes, it's excellent. Um,
you both are extremely knowledgeable investors and you've both touched
on this a little bit, but I'd love for you
(36:26):
to both just off the tops of your heads, what
is a responsible smart way for a for an inexperienced
investor to enter the investing game, um, in a way
that gives them the best chance of of Actually, you know,
I don't even know whether it's winning the game, but
(36:47):
but doing well not getting hurt. Okay, go, I'll go first. UM.
I would say, someone who's working at a company offers
a four oh one k, set it up, UM. If
you don't really have strong knowledge of allocation chances are
the default allocations a target date fun. They're very good
default option if you don't know what you're doing, And
(37:08):
every year increase how much you're contributing, even it's just
ten more, keep increasing it, keep saving as much as
you can, UM. And then I'll pass along the advice
Jack Bobe gave to me once, don't look at your
account for thirty or forty years. And then when you do,
have a doctor on call, because you might faint when
you see how big the balance is. That's great, love it, Okay, Hayley.
(37:34):
I agree. I think like starting with your four O
onek matches obviously the best way to have a guaranteed
two hundred as to return UM on your investment. I
also think that what's really important for beginner investors is
to know why they're investing, because it's obviously a sacrifice.
We would love to all, like, you know, just spend, spend, spend, spend, spend.
(37:58):
I love spending money. It's very fun. You should try it.
But but knowing knowing why I'm not having a story
in my mind, a clear idea of why I can't
do something makes it a lot easier UM and sort
of gets you aligned with yourself. I think in a
really powerful way. M hm. And I think for someone
(38:20):
starting out, just that's what your goals are. List what
you're going to allocate to and list how much you're
gonna save. You can use your notes app on your phone,
and that simple process holds you more accountable, but it
also gives you that clarity, so you're not trying to
keep it all on your head, and whenever you're nervous,
you can always go back to those RT notes. Oh
I'm saving for vacation, I'm saving for retirement. Just being
(38:42):
able to look at that and have that reminder when
the market is really volatile, here's a big picture. It
keeps you focused and it keeps you more disciplined. Right, alright,
So are there any questions or topics that we haven't
touched on that you think users of robin hood should
know about? You know, I think the idea that robin
Hood is going to make it easy for people to
(39:04):
invest really doesn't make it easy because yes, commissions are waived,
but then you still have to decide what to invest in,
and just you know, not having that guidance and thinking
people are gonna walk in and know exactly what they're
gonna do, it just doesn't work. I would say that
like investing should be really boring, um, and that like
(39:27):
if you're getting your thrills from your portfolio and from
your trades, and like you need new thrills and getting
rich quick, Like if it seems too good to be true,
it's probably too good to be true. And like, trust me,
if you're hearing about it on like Twitter and the news,
(39:50):
you're too late. Yes, Like the people who are actually
having the crazy returns are so freaking early on this stuff,
Like honey, you would know and if that was your
like d n A and that's not me, that's not
most people. So get real with your bad self, right.
I just want to put hi saying. I think if
you really had deserves to speculate, then segment your portfolio.
(40:12):
Maybe not a person of portfolio is long term conservative,
and then you have the small portion and whatever that
small portion is realized. This is money that you're prepared
to lose uma and if you lucky with it, great,
Um you know, but if you don't, at least you're
not harming yourselves. Yeah, that's that's great advice. It acknowledges
human nature. We all like to you know, throw caution
(40:36):
the windicationally, but if as so long as you're not
betting the farm. So to wrap up, uh, we have
a tool on this show that we call the BS scale.
Zero is the best meaning zero BS and on is
the worst total BS. So on that scale, what score
(40:57):
would you both? Uh you to Robin Hood Hayley. Um,
why don't you go first? Oh? Um? Well it's hard
because like they are letting you it's not like they're
like not letting you trade. So it's like they're not
fully bullshit because they are doing what they say that
(41:18):
they do. They're just like withholding information and uh, you know,
profiting from compulsion, so I would say like sixty three. Yeah, Charles,
you know I was gonna go a little bit higher.
I'm gonna go probably, And I will say the reason
I'm not even higher is I do think one thing
(41:40):
they did do was they got the major brokerages to
get the commissions down to zero. And while we can
talk about paying for order flow, if you're an investor
and you're making paycheck related contributions to your IRA or
your roth IRA, UM, that's huge. Where maybe you're putting
in fifty. I think if you average it out of
page text, I think the limit for i RAS is
(42:02):
like two a paycheck to be able to invest at
two at no cost every pay period. Um, that's actually
a big benefit, and I'll give Robin Hood credit for
bringing that about. Unfortunately, they also unleashed a weapon of
mass financial destruction with our gamifications. So that's why the
(42:22):
Bullshop meter is rather high. Yeah, that resonates, and um,
I think that's the that's the highest score that anyone
has given them. But I follow your reasoning. So this
was a great conversation. Charles and Haley. I want to
thank you both for being on the show. Thank you
thank you. Happy to invite it, folks, it is time
(42:44):
to give robin Hood their official BS score. The key
takeaway from me here is free is never really free.
Free always comes at a price, and in this case,
the price is being tossed into the deep end before
you even know how to swim. Robin Hood is good
at fooling unsuspecting newcomers into thinking investing is free and easy.
(43:08):
It's free, but it ain't easy. You have almost immediate
access to some very dangerous tools, and you're asked to
compete against career professionals. You wouldn't let a teenager who
had never touched a football play in the NFL, but
that's what Robin Hood does with inexperienced investors every day.
(43:28):
So I'm giving robin Hood a BS score of seventy.
They've accomplished the democratization piece of their mission, and the
app is certainly user friendly, but they have a long
way to go to make investing more understandable. If they
leaned into education by gamifying learning instead of trading, they
(43:50):
might really be onto something. And Robin Hood, CEO of
lad Tene, if you'd ever like to come on the
show to discuss anything that we've talked about today. Please
know that you have an open invitation if you're thinking
about starting a purpose led business or beginning the journey
of transformation to become one. Here are three things you
(44:12):
should take away from this episode. One, language matters. Every
word that robin Hood chose in their purpose should be
there for a reason, and it should drive action. Democratize
finance for all check. They do this by making it free.
Make investing friendly, approachable, and understandable for newcomers and experts alike.
(44:36):
Friendly and approachable, check and check understandable Nope, And when
you're dealing with money, failing to make it understandable is dangerous.
Choose every word in your purpose with care and make
sure that you're prepared to back them up with action. Two,
your purpose and your business model have to be aligned.
(44:59):
Robin Hoods are aren't Trading on robin Hood is free,
but free is not free. Their actual business model is
to make money off of every trade you make through
market makers. Trading too often is a bad habit, especially
for beginners, but if you don't trade a lot, robin
Hood doesn't make any money. That's why they gamify the
(45:21):
experience to encourage you to trade. Worse, they don't explain
that to you anywhere except in the terms of service.
Make sure in your business your purpose aligns with the
way that you make money. And three, be transparent. Like
a lot of technology businesses today, robin Hood hides the
(45:42):
questionable aspects of their business in their terms of service.
That's just shitty and it makes people hate you. If
you're feeling sheepish about some aspect of your business, first
consider changing it, or at the very least, be really
upfront about the way your product works, how you make money,
and what users can and cannot expect from you. I
(46:11):
want to thank our guests today, Devin Mills, Hailey Sacks,
and Charles rope Blott. To learn more about how to
invest wisely, check out the American Association of Individual Investors
website at a A I I dot com or have
a look at Hailey Sacks a k A Mrs dow
Jones investment course. And a big thank you to James
(46:35):
Royal for providing invaluable context for payment for order flow
and other aspects of the robin Hood business model. And
if you found this show worth investing in, subscribe to
the Calling Bullshit podcast on the I Heart radio, app,
Apple podcasts, or wherever you listen to people speaking to
your ears. We'll be taking a break next week, but
(46:58):
we'll be right back in your feed on November. Thanks
to our production team Hannah Beal, Amanda Ginsburg, d S. Moss, Hailey, Pascalites,
Parker Silzer, and Basil Soaper. Calling Bullshit was created by
co Collective and it's toasted by me Time Montague. Thanks
for listening.
The legend of Robin Hood begins in the Sherwood forms,
with rob and his merry men reappropriating taxes unjustly collected
by the evil Sheriff of Nottingham. Yeah, ah, sorry, wrong,
Robin Hood. The story of this robin Hood begins in
(00:34):
New York City, where two recent Stanford graduates, Vladimir Tenev
and Baju, bought toil Away, building software for high frequency
traders on Wall Street. Inside their office, computer's home and
keyboards click while outside. I'm here myself as a free individual,
(00:56):
to humanize the markets and to make Wall Street here
the sound of what democracy means. Inspired by the Occupy movement,
to help bridge the economic divide and democratize finance, Tenefan
Bott designed an app that let anyone access the stock
(01:20):
market for free, and they named it after everyone's favorite
egalitarian outlaw, Robin Hood. Welcome to Calling Bullshit, the podcast
about purpose washing, the gap between what an organization says
(01:41):
they stand for and what they actually do, and what
they would need to change to practice what they preach.
I'm your host, Time Montague, and I've spent over a
decade helping organizations define what they stand for, their purpose
and then help them to use that purpose to drive
transformation throughout their business. Unfortunately, at a lot of institutions today,
(02:04):
there's still a pretty wide gap between word and deed.
That gap has a name bullshit. But, and this is important,
we believe that bullshit is a treatable condition. So when
our bullshit detector lights up, we're going to explore everything
the organization should do to fix it. Robin Hood's purpose
(02:35):
is to democratize finance for all. They say. Their aim
is to make investing friendly, approachable, and understandable for newcomers
and experts alike. Employing a business model called payment for
order flow, robin Hood makes investing free to users and
just as easy as downloading a game onto your phone.
(02:58):
And the app doesn't just provide access to the traditional markets.
In June, robin Hood leveled up to include commission free
crypto trading, making bitcoin, ethereum, and other tokens available to
just about anybody. However, as popularity and download numbers grew,
so did criticism. Massachusetts regulators are accusing robin Hood of
(03:22):
what they call aggressive tactics in marketing inexperienced investors, using
gamification to manipulate those customers and failure to prevent outages
on that trading platform this year. In one example, robin
had allowed a Massachusetts user with no experience to make
more than twelve thousand trades in just six months and
(03:43):
to complaint this morning. The state highlights robin Hood's revenue
model of payment for order flow. This is a key point.
Payment for order flow is how robin hood makes money.
Even though the app itself is free to users. Individual
investors don't have to pay to trade because big trading
houses called market makers give robin Hood a small amount
(04:05):
of money for every single trade that's made on the app.
The more you trade, the more money they make. That's
the misalignment that drives the entire conundrum here. Robin Hood
wants people to trade. It's absolutely in the worst interests
of clients. The more you trade, the more likely you
are to lose money. Study after study has shown that
(04:29):
buy and hold is a much better investment strategy, and
critics and lawmakers raised the red flag, saying robin Hood
was designed more like a game in order to hook
first time investors and then capitalize on their inexperience. Regulators
also point to incentives like confetti popping up on screens
(04:50):
after trades and offers for robin Hood customers who are
more active on that app to move up on waitlists
for new products. In an attempt to quell the backlash,
robin Hood actually changed some of their graphics, but critics
were unimpressed. It's absolutely gamification. They have leaderboards, you can
win points, they have competitions on on on the site.
(05:13):
The only thing that they've removed is that you don't
get confetti now on your screen when your stock goes up.
You know, the robin Hood's big claim to fame is
that they've democratized access to finance, But I think they've
democratized it the same way that Purdue democratized access to oxycontent.
Simply making something easier to buy does not mean that
it is there for a good idea to buy it.
(05:35):
But robin Hood continued to allow anyone the freedom to
buy whatever stock they pleased until the game stopped fiasco
in early because being sort of built by the people
who are doing it as a David versus Goliath thing, Right,
So you have this army of small traders who are
using a Reddit message board called Wall Street Bets, and
(05:55):
they're putting pressure on the short sellers of game step.
This looks like a move by an outfit called robin Hood,
which is supposed to be taken from the rich and
giving to the poor, and doing exactly the opposite. The
action is so wild that t d amritraded robin Hood
have restricted trading of these stocks. Traders on Rabbits sent
the stock soaring this week, causing billions in losses for
(06:16):
the hedge funds that been against the video game retailer stock,
and today Wall Street decided enough wasn't enough. Declaring certain
stocks off limits made the platform look ominously undemocratic, and
while the app makes complex transactions frictionless, understanding those transactions
(06:42):
can be really hard, especially for beginners. This lack of
clarity can have terrible consequences. The most tragic of these
occurred in twenty twenty when Alex Kerns, a college student
from Illinois interested in investing, was granted approval by robin
(07:03):
Hood to trade options, a very risky thing for even
professional investors because of the interface. He mistakenly thought he
owed seven hundred and thirty thousand dollars that he didn't have,
and he wound up taking his own life. The note
he left, said I had no clue what I was doing.
(07:25):
The Financial Industry Regulatory Authority said that robin Hood had
quote failed to exercise due diligence for years. When approving
options trades, they find robin Hood seventy million dollars, the
biggest fine in the authority's history. This and a lawsuit
by Alex Kern's family were finally settled just before robin
(07:47):
Hood went public in the summer of one. Robin Hood
says their purpose is to democratize finance for all, to
make investing friendly, approachable, and understandable for newcomers and experts alike.
But he's making investing free through an app the same
(08:07):
as democratization. It feels like gamifying the stock market is
almost making it too easy. Researching this further, I found
just the person to help me understand the intersection of gamification, investing,
and gambling. So I called him up. Folks, I am
(08:28):
excited to introduce Dr Devin Mills. Devin, thanks for being here,
and uh, welcome to calling bullshit. It's great to be
with you, Tie. So before we get into robin Hood,
I'd love it if you could just tell us a
little bit about your background. And the work that you do. Sure. Sure, so.
I'm an assistant professor at Texas Tech University in the Community,
(08:51):
Family and Addiction Sciences department. My research is on non
substance use disorders, primarily video gaming and gambling, and with
regards to gambling, I also look at cryptocurrency trading and
risk taking behaviors in the financial markets, looking at it
from the behavioral side of things, trying to understand exactly
how people can become obsessed with it, how people can
(09:12):
start to internalize more of a problematic trading pattern. M fascinating. Okay,
would you take a run at defining that word for us? Gamification? Sure?
I think the simplest way of defining it is to
employ game design to an area that doesn't necessarily have games.
You could not say that we're gamifying the NFL, for instance,
(09:35):
the NFL football is a game that wouldn't necessarily so
that wouldn't work. But gamifying learning in a way that
is something that education has done. And my understanding is
that's kind of the roots of gamification has been in
the education domain, right and and so the point of
it is to essentially make the subject matter stickier, more engaging,
(09:57):
more uh, fun all of those things, getting someone interested
in the topic area and making it more of a competition, um,
giving someone an objective a quest. But there's also the
gamification in terms of the rewards piece, and I think
that's where a lot of the literature, a lot of
the mainstream media has kind of focused more, especially as
(10:17):
it as applies to some of these mobile applications. Is
the idea of rewarding individuals for training behaviors, as applied
to robin Hood in terms of badges and whatnot, kind
of the Boy Scouts mentality of uh, keep on awarding
individuals for their acts of service and their acts of knowledge. Yeah,
let's turn to robin Hood. Would you say that the
design of the robin Hood app is gamified? They used
(10:40):
to have the confetti once you made a trade, um,
whether that was selling or buying. I haven't seen a
lot of rewards. It doesn't necessarily mean that individuals don't
feel rewarded in some way, So confetti would be an
example of a kind of gamified aspect of the app experience. Yeah,
but I would also I think the the idea that
(11:03):
that's the only way in which humans interpret a reward
is kind of a misnomer, right when their portfolio is
going up a hundred dollars two hundred dollars, or maybe
it's going down two dollars. I think the human brain
will interpret that as something to chase, something to continue.
I wonder, like our human beings all equally susceptible to gamification,
(11:28):
or are some people more likely to be seduced than others?
I would say it usually depends on the task. If
you are an individual who is completely averse to any
risk whatsoever, the idea that gamification by itself could get
you to do something that you wouldn't otherwise do I
(11:49):
haven't seen any research to suggest that gamification is that strong.
So you're an expert in gambling and gambling addiction, Robin
Hood says that investing is not gambling. Um, but I've
noticed that in some of your work you point out
that there seems to be a correlation between investing, particularly
(12:10):
investing through a smartphone, and risk taking behavior. So I
wonder if you could unpack the relationship between gambling and investing.
How are they different and how might they be the same.
When we think about gambling, we immediately assign a level
of risk. When we think about investing, we imply almost
(12:32):
a strong chance of return, almost eclipsing this idea of risk. Yeah,
it sounds responsible. I'm an investor or. Yeah. You have
your friends saying well, that's a gamble versus well, that's
an investment. You know, that has different ways in which
we interpret that, But I I go back to the
basic definition. Gambling is risking something of value, primarily money,
(12:54):
on the chance of an outcome. Uh that should result
in individuals earning more money in return. That's gambling. And
so based on that definition, I find it really hard
to see stock trading, crypto trading in particular, to not
be some element of gambling. Now that being said, I
(13:15):
do encourage people to take charge of their wealth. I
encourage people to learn more about the stock market, but
I also think there needs to be uh, some clarification
on the terminology. In my mind, if you're buying stocks,
you are gambling, but you're maybe gambling more responsibly or
less responsibly, and that's a variation of investing. One of
the other aspects of the app is that it makes
(13:36):
investing social. Does that make the app stickier? So I
would I would go back to our gamification question. Do
they have to have a gamification piece if so many
people are going to be bragging about it, sharing their gains,
sharing their losses on Wall street bets. If there's a
strong enough social community, does it have to have rewards
(13:58):
in order to increase participation? I think right now the
research isn't there yet, but generally speaking, when we look
at motivation in other areas, we see that the social
component is very very strong. Right. It seems to me
that people who who enjoy the feeling of risk, uh,
would be more likely to become addicted by gambling. Is
(14:19):
that doesn't right? Definitely? Yeah. You have to be interested
with uncertainty, you have to be okay with that, you
have to enjoy the rush. There's a little bit of
research on the fear of missing out. That idea as
well is quite prevalent. We've started to play with this
concept of individuals feeling like they're missing out on the
(14:39):
rewards that other people are experiencing, and that seems to
be contributing also to individuals taking greater and greater risks
and trading more problematically than they otherwise would. And so
that would be you know, again, the sort of social
aspect of it. You have you're doing it in public,
and you're watching other people presumably either make or not
make money, and and you kind of are judging your
(15:02):
own um success or failure against that of others. Like
that's got to have an effect on on the stickiness
of the platform for certain people. Definitely. Yeah, And this
is something I'm just thinking about in the midst of
our conversation. Is the idea that is this social piece
adding to individuals experience of FOMO. So it's amplifying their
(15:23):
FOMO and that's what's contributing to their greater risk taking
on the app um. So there there's definitely a role.
There's definitely a cycle that I can I can see
from a theoretical perspective. Um, and I'm not exactly sure
what breaks that cycle. Yeah, And robin Hood says, so
I'm just gonna quote there from their purpose. They say
their purposes to democratize finance for all. We believe that
(15:47):
everyone should have access to the financial markets. So we've
built robin Hood from the ground up to make investing friendly, approachable,
and understandable for newcomers and experts alike. And if you
have a great purpose, and we think robin Hood's purpose
sounds great, is you have to actually do it right.
And one of the actions that they could take is
(16:09):
do a better job of educating people. Are there other
things that you think robin Hood could or should do
to make the app align better with their purpose and
and not be as potentially dangerous. I do. I think
there's ways in which to have a cool off period
if someone is trading quite erratically. Uh. Robin Hood has
(16:32):
and just like any other brokerage out there, has access
to a ton of data on their interesting and how
they trade. And this has been something that actually I'm
borrowing from the gambling literature. Right now, we have quite
a few tech companies developing applications that can track how
individuals are gambling, how many bets they're making per minute,
are they escalating, are they acting in a very erratic way.
(16:54):
Robin Hood has to be acting in good faith with
regards to protecting its consumer versus protecting its business um
and so that needs to be uh, something that needs
to be drawn out. Binance actually supposedly I don't have
a Binance account, but they have on their website a
responsible trading platform, and they do have some of these
pop ups that say, you know, we're seeing that you're
(17:16):
elevating your risk, you're increasing your risk position. Uh, you're
trading quite a radically, you're buying quite a bit. Maybe
it's time to chill out, basically, to take a break. Uh.
They do actually put holds on people's accounts. Uh, definitely,
based upon whether or not they're over there, over extended exactly.
And finance is a crypto platform, So let's talk about
crypto because you can buy crypto now on the robin
(17:39):
Hood app as well. Do you see investing in crypto
as more similar to gambling than traditional investing since the
value of cryptocurrency is in most cases based more on
faith than on any kind of hard asset. Crypto does
not have a fundamental asset. There's a lot of belief.
(18:00):
The short answer is cryptocurrency trading is gambling. Is gambling? Right, Yeah,
Just again, in the spirit of fairness, UM, we should
point out that and I think you mentioned this earlier on,
but I just want to make sure we get this
on the record that to be fair to robin Hood,
they have responded in at least one tangible way to
the accusations that they are gamified. You know, before the
(18:22):
I P O one, they replaced the confetti with some
kind of new animation, and what they said about it
was the confetti distracted from the goal of the app,
which is to make regular people, everyday folks who have
been kept out of the market feel like they can
participate and feel like they're being positively reinforced for taking
steps in their financial life. So, you know, people people
(18:47):
noticed the confetti, people didn't like the confetti. They have
addressed the confetti. How meaningful a change would you say
that is you feel like that's enough? I would say
that it is start to better serving their consumer, recognizing
that it wasn't in the mission. It wasn't actually increasing
(19:08):
or the democrazation. It was adding more maybe fun to it.
I don't know how many people really cared about the confetti,
um right, and so it hasn't changed much. I think
when I'm looking at their statement to democratize finance for all,
I would love if they also not just democratize it,
but increase knowledge. Yes, And I think once you go
(19:29):
down that road, you're starting to really protect consumers and
you're starting to increase and democratize finance for everybody totally.
And you made the point about the gamification of education.
You could gamify that aspect of the app and make
it so essentially to unlock different layers of features, you
had to demonstrate certain levels of of knowledge. Right, essentially
(19:52):
you have to take a quiz in order to unlock
the options feature or the margin feature. Um, you would
you that people would work at internalizing that information, remembering it,
understanding it, and applying it. And uh, I completely agree.
It would actually do a much better job of helping
them achieve their their stated purpose, which is, you know,
(20:14):
to my mind, a really good one. I think that's great.
And I was also just thinking you why not you know,
create something like a diversification quotient that a simple trader
can look and say, well, how diversified am I? Oh look,
here's a number up here. What does this number mean?
Or what about a risk quotation? How risky have I
been trading? How risky is my is my overall portfolio?
(20:34):
How how open am I? That's one of the reasons
why people join these brokerages is ordered to gain access
to some of this information. And to your point, they've
got tons of data. They have tons of data about
people like you, and if it were an anonymised, right,
they would they would know when you're showing signs of
(20:56):
getting yourself in trouble and they should flag that to you. Um. Yeah,
So it seems like there's much more that they could
be doing as I as I really think about it, Um, Devin,
we have a tool on the show we call the
BS score, and what we're trying to do is measure
the gap between word. Indeed, our scale goes from zero
(21:17):
to one hundred, zero being the best, zero bs on
being the worst. Total BS. So robin Hood says their
purpose is to democratize finance for all and that they
believe that everyone should have access to the finale financial markets.
So they've built robin Hood from the ground up to
make investing friendly, approachable, and understandable for newcomers and experts alike.
(21:42):
What score would you give them? Um, I'm gonna give
it a fifty five out of possible one. I look
at their mission statement and I see that the democratization
it really has nothing in their about necessarily keeping people
safe from harm or educating people, trying to just make
sure it's accessible, uh, and democratizing making sure everyone has
(22:05):
access to these markets. It seems like that's something that
robin Hood has accomplished, but that's not necessarily without some consequences.
I want more from robin Hood. I think robin Hood
could be a great company that really doesn't just open
the doors, but also sits people down and says, here's
how you can do this more effectively, here's how we
(22:25):
can make you more effective in your trading. It's something
that I think robin Hood could actually achieve um and
be really fire its namesaked, really trying to build people up.
So that's where I see it as it stands right now. Yeah,
I love the thoughtfulness of that score. And I want
to thank you for being being on the show and
taking the time today. Thank you very much, Hi, It's
(22:48):
been great, So to be fair. Gamification doesn't take away
a person's free will or absolve them of responsibility for
or decisions. But robin Hood still turns the stock market
into a dangerous game, and given their business model, they
don't have any incentive to change. The more I learned,
(23:11):
the more concerned I am about the harm that robin
Hood can do. But we're not here to just curse
the darkness. It's important to light a few candles as well,
so we'll get into some ideas to fix robin Hood
right after the break, Folks, it is time to talk
(23:36):
about actions that robin Hood could take to better do
their purpose of democratizing finance for all joining me today,
we have two extremely qualified experts. First up, I'm really
excited to introduce Hailey Sacks. Hailey, thanks for joining us
and welcome to calling bullshit. Thank you so much for
(23:57):
having me. I'm excited to call bullshit and Haley for
the listeners. Could you tell us a little bit about
your background. Yes, So, I'm Haley, otherwise known as Mrs
dow Jones, and I was the first financial influencer fantastic,
and I want to introduce Charles road Blood. Charles, thank
(24:18):
you for joining us today and tell us a little
bit about your background as well. Sure, I'm a chartered
financial analyst. I work with the American Association of Individual
Investors AI and among the things I've created there as
our prison wealth blooding processes is really about taking your
goals and having those drive all of your savings and
(24:39):
investing decisions. Okay, so let's jump right into some ideas. Charles,
I'm gonna ask you to go first. In two months,
or less. What's the one thing that you would change
about robin Hood to better do their story? Well, I
think they need to focus on long term investing, and
given that they're an app based broker um, I think
(25:00):
it'd be great if they could actually gamify the process
of long term investing, give points or give rewards to
people who set up automatic deposits, to people who pick
an allocation and stick with it. And there's things they
can do like great leaderboards. Uh, this person's increased their
automatic contribution, this person has gone x days without looking
at their portfolio balance, a little things like that which
(25:23):
would really encourage people to think about investing for long
term and most importantly gets them in the habit of
not being reactive and not constantly wanting to trade and
turn over their portfolios. Hmm. I think that's a really
interesting idea. Haley, what do you think about that idea?
I'm like enthusiastically nodding. You guys can't see because the podcast,
(25:46):
but that's pretty much my dream app. Yeah. I guess
the only question I have about that is is sort
of um business model? Right? Because right now they make
money using some and called payment for order flow, So
the more you trade, the more money they make. Essentially,
it would definitely be a seismic shift about the revenues
(26:08):
come from payment for order flow and most of that
from options and from crypto. So it would require a
big shift and their business model. But I think it's
questionable how sustainable their business model is right now, given
that we're already saying trading volumes dropped because the market's
been down. Yeah, I agree, it doesn't feel sustainable all right,
(26:32):
So great idea. Thank you, Charles Haley, your turn. What's
the one thing you would tell uh CEO of lad
ten of to do differently to get robin Hood back
on track. You mentioned at the beginning of this that
robin Hood is here to make investing easy and democratize it,
and it almost feels like right now they've given everyone
(26:56):
the ingredients to cook with, but with no cookbook. And
so I would really like to see them and force
uh financial literacy course or some sort of quazz that
you have to go through before you tread um, just
to ensure that their users actually understand what they're doing.
(27:21):
We all want to be intuitive cooks, we all want
to be intuitive investors, but you know, rarely does it
actually work out. Yeah, I hear that and and agree.
So all right, it's it's my turn, and maybe not surprisingly,
I am hunting in in similar ground with with my idea.
You two are the experts, obviously, but you know, Robin
(27:43):
Hood says their goal is to make investing friendly, approachable,
and understandable, and my biggest beef with them is that
they've made investing friendly and approachable, but they've done a
pretty terrible job of making it understandable. So my idea
is to de gamify the investing aspect and instead gamify
the education part of the app and make it so
(28:05):
I earned points for reading and passing quizzes to unlock
functionality in the app, and don't just drop me in
the deep end, right, make a point system that creates
friendly competition among users and kind of encourages me to
be the smartest and wisest investor, so, you know, hopefully
making learning to invest well both social and interesting. Part
(28:26):
of the education could also explain the business model to people,
which right now is you know, currently buried in the
terms of service, so people actually understand that there's no
such thing as free, that that that that actually the
app because of its business model is encouraging them to
do things that are not necessarily good for them as investors.
(28:48):
I actually don't mind if they keep the ability for
people to invest like willie nilly, as long as it's
just really clear. But I don't need them to h
to change their business model, like I want them to
(29:08):
add to it. And then if you choose not to
do that, like you said that, it's like very clear
in Layman's terms. Okay, here are the risk that you're taking. Yeah,
it just seems like transparency. Yeah, right, So I just
want to add I get curious. I sent up for
Robin Hood, I guess earlier this year last year, and
(29:29):
I got approved the trade options probably within five minutes.
And I understand options, but they had no idea who
I was. And you know, if I was a novice
and more talking about education, I would have no idea
how deep will pull I'm walking into blindfolded. And I
think people are signing up and during social media or something,
(29:49):
they think, oh, let me go buy options on game Stop,
not having any understanding of what exactly it is they're buying,
much less the risk involved. Yeah, I was I was
reading uh just this morning, just to to you know,
kind of refresh my memory about the young man who
he was trading options and um, the app told him
(30:11):
that he owed seven thirty thou dollars at the end
of some trade, and and in in a note that
he sent to his parents, he pointed out that he
didn't have a clue how to you know, trade options
or what that actually even meant. And so in some
cases the results are are literally deadly. Yeah, it's extremely
a risk, especially when you start talking about margin debt.
(30:32):
That's where people can really lose a lot of money
versus that they just you just use a cash account,
then whatever is in any account, if that's gone, that's got,
that's gone, it's gone, right. But this case, you're basically
gambling on a credit card. And I think it's difficult
because people think, oh, well, this is going to be
the trade that gets me out, and so then they
keep trying and trying. And I mean it's a tale
(30:55):
as old as time. Um that that makes me wonder.
I'd love to hear what both of you to about
about crypto. Like crypto in particular feels like it's in,
like it's out at the edge of speculative um for
for investors how do you view that space. I think
that it's okay to be excited about cryptot to think
(31:15):
it's cool, But that doesn't mean that you have to
like make bitcoin your whole personality. Don't go all in Charles,
what's you're taking. I think the blockchain technology has a
lot of interesting a lot of upside, But I think
it's important to separate crypto from blockchain, and crypto itself
is a currency. I still can't go in my local
(31:36):
grocery store with bitcoin or ethere um and buy a
loaf of bread, and so there's a huge network effect
that crypto has to overcome. But whereas you look at blockchain,
we see JP Morgan's actually working with it too, spirit transactions.
There are a few other areas that I'd love to
explore with you, but I wanted to start out with
(31:58):
something that's Scott gallow Way said he said some funny
and mean things about about Robin Hood. Yeah. One thing
he said is I believe these guys are mendacious. Fox.
The company's mission to democratize finance for all is similar
to Pablo Escobar saying his mission was to democratize cocaine
(32:20):
um and and you know, humor aside. This idea that
he's poking at, that that democratizing something is automatically good
is deeply questionable. I would say, yeah it is. And
I'll make an analogy here. I'm running at the Chicago Marathon,
and my time will be against some of the best
(32:43):
marathon runners in the world, and obviously my time will
be much slower, but that doesn't harm me. Why walk
in the wall street. I'm taking my knowledge against everybody
else involved, and there's a bunch of very skilled people
with a lot more data and a lot more speed,
uh the average individual investor, And so individual investors really
(33:04):
have to play that long term discipline game to have
an advantage. But Robin Hood encourages this fast trading, this
concert turnover, which is exactly the wrong thing an individual
investor should do. Yeah, I mean, that's it's a very
interesting point. There are not a lot of situations where
(33:25):
to use another sort of sports analogy, like where you
play against professionals right out of the gate. You know,
in football, there's peewee football, and then there's grade school
football and high school football and college football, and then
there's the NFL. But in investing, like they tell you
to strap on a helmet and you're playing against NFL
(33:48):
players right out of the gate, playing against professionals. But
like in golf you would have the handicap. In investing,
you can also have a handicap. It's called not picking
individual stocks, right, Yeah, And I think a lot of
people don't really know that. So just another another area
of inquiry, you know, robin hood is is racking up,
(34:12):
you know, a bunch of data about each individual user.
One other idea that occurred to me was just what
if the app told me what my risk profile was
as an investor, right and and told me literally you're
in the red, or you're in the yellow, or you're
in the green in terms of the risk that you're
(34:33):
taking based on your investing behavior. Robin Hood could reach out.
There's these behavioral sciences, whether it's Richard Taylor who won
the Nobel Prize, marriage statman, Robert Schiller. Um, I'm sure
they would have some great ideas about how to use
the data to actually create a more sustainable, better app.
But again it's a shift in business models to shift
(34:54):
in thinking. Uh where you know, robin Hood, despite what
they say, uh, they're all really is to maximize profits
and not worry about what they're breaking. Um. And it
is that culture of let's not worry what we break. Uh,
that can cause a lot of damage. Do other of
you have any thoughts on the name Robin Hood? You know,
(35:16):
Robin Hood's namesake was a thief with a twist. He
stole from the rich and gave to the poor. Does
the Robin Hood app live up to that story? I'd
say it's the opposite. And you just look at their
SEC documents. Um. I mean they're primary source of revenue
is running orders through market makers, so they're taking the
orders placed by small investors and out of every trade,
(35:39):
they're directing it to specific market makers versus trying to
seek the absolute best execution price. And the investors training
Robin Hood's platform are paying for that, so they're not
they're doing exact opposite. Yeah. Yeah, that's a little dark.
Actually it's GDS. Obviously it's so misleading from a marketing perspective.
(36:05):
I'm like, well done, Sadly, somebody somebody smart. Yeah, I
could say Mr Burns in the background. Excellent, Yes, it's excellent. Um,
you both are extremely knowledgeable investors and you've both touched
on this a little bit, but I'd love for you
(36:26):
to both just off the tops of your heads, what
is a responsible smart way for a for an inexperienced
investor to enter the investing game, um, in a way
that gives them the best chance of of Actually, you know,
I don't even know whether it's winning the game, but
(36:47):
but doing well not getting hurt. Okay, go, I'll go first. UM.
I would say, someone who's working at a company offers
a four oh one k, set it up, UM. If
you don't really have strong knowledge of allocation chances are
the default allocations a target date fun. They're very good
default option if you don't know what you're doing, And
(37:08):
every year increase how much you're contributing, even it's just
ten more, keep increasing it, keep saving as much as
you can, UM. And then I'll pass along the advice
Jack Bobe gave to me once, don't look at your
account for thirty or forty years. And then when you do,
have a doctor on call, because you might faint when
you see how big the balance is. That's great, love it, Okay, Hayley.
(37:34):
I agree. I think like starting with your four O
onek matches obviously the best way to have a guaranteed
two hundred as to return UM on your investment. I
also think that what's really important for beginner investors is
to know why they're investing, because it's obviously a sacrifice.
We would love to all, like, you know, just spend, spend, spend, spend, spend.
(37:58):
I love spending money. It's very fun. You should try it.
But but knowing knowing why I'm not having a story
in my mind, a clear idea of why I can't
do something makes it a lot easier UM and sort
of gets you aligned with yourself. I think in a
really powerful way. M hm. And I think for someone
(38:20):
starting out, just that's what your goals are. List what
you're going to allocate to and list how much you're
gonna save. You can use your notes app on your phone,
and that simple process holds you more accountable, but it
also gives you that clarity, so you're not trying to
keep it all on your head, and whenever you're nervous,
you can always go back to those RT notes. Oh
I'm saving for vacation, I'm saving for retirement. Just being
(38:42):
able to look at that and have that reminder when
the market is really volatile, here's a big picture. It
keeps you focused and it keeps you more disciplined. Right, alright,
So are there any questions or topics that we haven't
touched on that you think users of robin hood should
know about? You know, I think the idea that robin
Hood is going to make it easy for people to
(39:04):
invest really doesn't make it easy because yes, commissions are waived,
but then you still have to decide what to invest in,
and just you know, not having that guidance and thinking
people are gonna walk in and know exactly what they're
gonna do, it just doesn't work. I would say that
like investing should be really boring, um, and that like
(39:27):
if you're getting your thrills from your portfolio and from
your trades, and like you need new thrills and getting
rich quick, Like if it seems too good to be true,
it's probably too good to be true. And like, trust me,
if you're hearing about it on like Twitter and the news,
(39:50):
you're too late. Yes, Like the people who are actually
having the crazy returns are so freaking early on this stuff,
Like honey, you would know and if that was your
like d n A and that's not me, that's not
most people. So get real with your bad self, right.
I just want to put hi saying. I think if
you really had deserves to speculate, then segment your portfolio.
(40:12):
Maybe not a person of portfolio is long term conservative,
and then you have the small portion and whatever that
small portion is realized. This is money that you're prepared
to lose uma and if you lucky with it, great,
Um you know, but if you don't, at least you're
not harming yourselves. Yeah, that's that's great advice. It acknowledges
human nature. We all like to you know, throw caution
(40:36):
the windicationally, but if as so long as you're not
betting the farm. So to wrap up, uh, we have
a tool on this show that we call the BS scale.
Zero is the best meaning zero BS and on is
the worst total BS. So on that scale, what score
(40:57):
would you both? Uh you to Robin Hood Hayley. Um,
why don't you go first? Oh? Um? Well it's hard
because like they are letting you it's not like they're
like not letting you trade. So it's like they're not
fully bullshit because they are doing what they say that
(41:18):
they do. They're just like withholding information and uh, you know,
profiting from compulsion, so I would say like sixty three. Yeah, Charles,
you know I was gonna go a little bit higher.
I'm gonna go probably, And I will say the reason
I'm not even higher is I do think one thing
(41:40):
they did do was they got the major brokerages to
get the commissions down to zero. And while we can
talk about paying for order flow, if you're an investor
and you're making paycheck related contributions to your IRA or
your roth IRA, UM, that's huge. Where maybe you're putting
in fifty. I think if you average it out of
page text, I think the limit for i RAS is
(42:02):
like two a paycheck to be able to invest at
two at no cost every pay period. Um, that's actually
a big benefit, and I'll give Robin Hood credit for
bringing that about. Unfortunately, they also unleashed a weapon of
mass financial destruction with our gamifications. So that's why the
(42:22):
Bullshop meter is rather high. Yeah, that resonates, and um,
I think that's the that's the highest score that anyone
has given them. But I follow your reasoning. So this
was a great conversation. Charles and Haley. I want to
thank you both for being on the show. Thank you
thank you. Happy to invite it, folks, it is time
(42:44):
to give robin Hood their official BS score. The key
takeaway from me here is free is never really free.
Free always comes at a price, and in this case,
the price is being tossed into the deep end before
you even know how to swim. Robin Hood is good
at fooling unsuspecting newcomers into thinking investing is free and easy.
(43:08):
It's free, but it ain't easy. You have almost immediate
access to some very dangerous tools, and you're asked to
compete against career professionals. You wouldn't let a teenager who
had never touched a football play in the NFL, but
that's what Robin Hood does with inexperienced investors every day.
(43:28):
So I'm giving robin Hood a BS score of seventy.
They've accomplished the democratization piece of their mission, and the
app is certainly user friendly, but they have a long
way to go to make investing more understandable. If they
leaned into education by gamifying learning instead of trading, they
(43:50):
might really be onto something. And Robin Hood, CEO of
lad Tene, if you'd ever like to come on the
show to discuss anything that we've talked about today. Please
know that you have an open invitation if you're thinking
about starting a purpose led business or beginning the journey
of transformation to become one. Here are three things you
(44:12):
should take away from this episode. One, language matters. Every
word that robin Hood chose in their purpose should be
there for a reason, and it should drive action. Democratize
finance for all check. They do this by making it free.
Make investing friendly, approachable, and understandable for newcomers and experts alike.
(44:36):
Friendly and approachable, check and check understandable Nope, And when
you're dealing with money, failing to make it understandable is dangerous.
Choose every word in your purpose with care and make
sure that you're prepared to back them up with action. Two,
your purpose and your business model have to be aligned.
(44:59):
Robin Hoods are aren't Trading on robin Hood is free,
but free is not free. Their actual business model is
to make money off of every trade you make through
market makers. Trading too often is a bad habit, especially
for beginners, but if you don't trade a lot, robin
Hood doesn't make any money. That's why they gamify the
(45:21):
experience to encourage you to trade. Worse, they don't explain
that to you anywhere except in the terms of service.
Make sure in your business your purpose aligns with the
way that you make money. And three, be transparent. Like
a lot of technology businesses today, robin Hood hides the
(45:42):
questionable aspects of their business in their terms of service.
That's just shitty and it makes people hate you. If
you're feeling sheepish about some aspect of your business, first
consider changing it, or at the very least, be really
upfront about the way your product works, how you make money,
and what users can and cannot expect from you. I
(46:11):
want to thank our guests today, Devin Mills, Hailey Sacks,
and Charles rope Blott. To learn more about how to
invest wisely, check out the American Association of Individual Investors
website at a A I I dot com or have
a look at Hailey Sacks a k A Mrs dow
Jones investment course. And a big thank you to James
(46:35):
Royal for providing invaluable context for payment for order flow
and other aspects of the robin Hood business model. And
if you found this show worth investing in, subscribe to
the Calling Bullshit podcast on the I Heart radio, app,
Apple podcasts, or wherever you listen to people speaking to
your ears. We'll be taking a break next week, but
(46:58):
we'll be right back in your feed on November. Thanks
to our production team Hannah Beal, Amanda Ginsburg, d S. Moss, Hailey, Pascalites,
Parker Silzer, and Basil Soaper. Calling Bullshit was created by
co Collective and it's toasted by me Time Montague. Thanks
for listening.
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