What a Robinhood Account has Taught Me About Investing
When Robinhood launched, it offered a revolutionary principle in trading: no commissions, and an ultra-simple app structure that allows anyone with a little spare cash to get involved in investing. The beauty of this structure is not that it scales well to large investments, as Robinhood makes its profits from taking “rebates” on trades and passes a higher cost to consumers (in fact, its structure is actually a detriment when trading large amounts of money - The Wall Street Journal), nor is it the barebones data that the app provides on its equities. The beauty of the app is that it removes any barriers previously experienced by would-be small-scale investors. As the world moves in a direction of mass-accessibility, Robinhood is carrying the lantern into the world of personal stock trading.
It is this that allowed me, over the summer, to begin trading some spare savings I had accumulated in equities. And what I learned quite quickly in trading these equities is that speculative investing is not merely a means to an end, with that end being profits, but can also be an end itself. Trading only a spare $500 in my free time has taught me more about the core principles of investing than any class I have ever taken at Georgetown, for the only way to truly understand these core principles is a trial by fire – one must be burned to learn what risk and reward truly means.
Opening the news one day and lamenting a headline about how the S&P or Dow fell was common practice for me; opening up that same article and then realizing I had lost $20 in a week created an entirely new feeling. The market will play with one’s heartstrings five days a week, and one must learn to tune the beautiful and awful music out to clearly move forward. Early in the summer, I felt I was the next Warren Buffet, with returns of over 8% in merely a month. Yet two weeks later, I felt like the average buffoon on the block when the percentage at the top of the app displayed a negative number. Why did I invest money in industrials stocks that would be hit hard over the summer by escalating tariffs when I knew that the trade war would not end anytime soon? My mind became more and more clouded each day. Every day I opened the app and saw my investments below $500, I contemplated pulling the plug and cutting my losses.
My most heart-wrenching stock has been Nvidia, which has been extraordinarily volatile in the past three months since my purchase. I acquired it at $151, and when it hit $181, I couldn’t stop lusting after even greater profits. Think of it as a family-sized bag of potato chips – once one starts eating, they become obsessed with the flavor and cannot stop reaching for more even though they know they should stop. Inevitably, Nvidia slid back down into the $150s and I cursed myself for my greed. However, I held on, believing in the growth potential, and Nvidia not only raised back to the $170s. Can I say for certain that that are much greater returns on the horizon for Nvidia? No, and some experts entirely disagree with my assessment. But now I have learned to think more clearly and logically consider the potential for growth in such a stock and not concern myself with short-term fluctuations. Nvidia operates in a market with extraordinarily high barriers to entry due to the complexities of its products, the future of rival tech giant Huawei’s business in the U.S. is somewhat up in the air, and Nvidia is invested in extraordinary growth opportunities like partnering to develop self-driving cars.
What Robinhood taught me about investing is risk-toleration. Short-term fluctuations ultimately are unimportant. This is an easy concept to learn in a finance textbook, but a more difficult one to come to terms with in practice. Only by experiencing the losses can one understand how to tolerate such fluctuations. Thus, I encourage everyone interested in finance to take some spare savings and try out investing in stocks. There is no better lesson for the concepts of risk and reward while training oneself to focus only on the long-run than by doing it oneself. I hope to see you all on the markets soon.
Continue the conversation with Robert at jrm422@georgetown.edu.
***Disclaimer: While GCI encourages all members to invest personally for the additional learning experiences, GCI does not officially endorse Robinhood due to the potential higher risk of bankruptcy when compared to more traditional brokerage firms.