Robinhood democratises investment for all but at what cost? Regulation is necessary

It sounds like a good idea – removing commission costs to allow anyone to invest their hard-earned money. But the reality is letting amateurs at the market can lead to financial ruin and worse, writes Chris Blackhurst

The mission statement of Robinhood is ‘democratising finance for all’. It’s hard to resist that reasoning (Shutterstock/dennizn)

My investment manager chums have been agog these past few weeks at the exploits of the Robinhoods. Note the spelling. I don’t mean the legendary figure who roamed the woods of Nottinghamshire stealing from the rich to give to the poor. I refer to commission-free share trading. There are several apps that offer such a service but the leader is Robinhood, with more than 13 million users.

So popular has the fintech platform become that these retail or private investors piling into stocks are now known as “Robinhoods”. They can be defined still further: the median age of this new breed of amateur playing the stock market is 31; and the share prices of the companies they’re targeting tend to have crashed. In short, they’re jocks, more used to having a flutter on live sport or down at the casino. Stuck at home, bored by lockdown, itching for a buzz, and seeing what they believe to be a chance to have a bet and make a killing, they turn to stocks.

Many of them adopt the same deeply analysed and thought-through techniques (ie, non-existent) as they use to back a horse or a number in roulette. They like the sound of a business, they might recognise it as a famous brand, one that’s been around for a while and does not deserve to be where it is and will surely bounce back. They think they know best, that they’ve spotted something the professional experts have failed to see.