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Robinhood: With great popularity comes great scrutiny

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Robinhood has raised more money since Thursday ($3.4B in total) than it has in the previous eight years of its existence. Mind-blowing! It's even reportedly considering taking an additional $1B in debt in the coming days. What is Robinhood doing? It has been busy fortifying its finances for the next onslaught from Reddit traders. Robinhood wants to make sure it has enough collateral on hand to cover its obligations to 3rd partners that settle trades, which have been through the roof. So Is Robinhood in trouble? Nah. On Friday, revenue-generating trades on Robinhood were 4x greater than last summer's average, according to the FT. Despite the massive backlash across Twitter and Reddit, Robinhood is currently No. 1 on Apple's free app charts and was downloaded more than 600,000 times on Friday alone. Still, it's not all rosy for Robinhood. Its CEO Vlad Tenev is expected to testify before the House Financial Services Committee on Feb. 18 about his company's role in the...
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One share can be shorted multiple times. This needs to stop.

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In light of what happened with Gamestop and AMC's respective stocks, there will be lots of hearings and calls for reforms in short-selling. What I really hope is that predatory hedge funds and their lobbyists don't get their way and undo  SEC rule 204 , which regulates the close out requirements for shorts- i.e. when a short seller is on the hook to actually buy a stock they borrowed.  Currently, short-sellers are forced to deliver on their short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement date. The predatory hedge funds will call for this requirement to be relaxed to give short sellers more time to buy the stock and close their positions. They will argue that giving short sellers more time will reduce the rush to buy back the shares and help avoid a short squeeze. Giving them more time will only enable them perform these charades on many more good companies - they almost destroyed Tesla not so long ag...
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Tech Bubble: First Robinhood and now SoftBank

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Last week, the Financial Times (FT) reported that SoftBank Group Corp. may be behind the recent roaring rally in large-cap U.S. technology stocks. According to the FT, in addition to buying over $4 billion in individual big tech stocks (Amazon, Apple, Tesla, Microsoft, Facebook, Alphabet), SoftBank bought options tied to around $50 billion worth of these individual stocks. But before the FT dubbed SoftBank the “Nasdaq Whale” and blamed it for the rally, many argued that the frenzy was squarely on the shoulders of “bored” unprofessional investors on platforms such as Robinhood who have taken to option trading as a new hobby while locked in.  Could it be possible that options-buying tied to individual stocks could move markets in this way and trigger this massive rally? In "Bad signs for the epic market rally" , I mentioned that the market is indeed very top heavy; with 1% of the stocks in the S&P 500 - Alphabet, Amazon, Apple, Facebook and Microsoft - accounting for more t...
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SPAC: Why many unicorns won't hop on the SPAC wagon

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2020 has certainly been the year of blank check acquisition companies - or SPACs.  That's how Nikola- the sexy electric truck shop-, Utz - the iconic snacks company- and Virgin Galactic went public earlier in the year. Plus, it's also how electric vehicle makers Fisker, Canoo, and Lordstown Motors announced they will go public. Plus Plus, famous investor Bill Ackman recently took his SPAC (Pershing Square Tontine) public in the largest-ever blank-check IPO (it raised A whopping $4B). The objective is to buy a mature unicorn. Ackman actually said Pershing might buy a “mature unicorn” 6 times in the filing. However not all private companies are psyched about merging with SPACs to go public. Airbnb reportedly turned down an offer to merge with Bill Ackman's SPAC, saying it prefers going public via traditional. Airbnb isn't alone. Snowflake, Slack, Shopify and BigCommerce are other flashy SPACs that declined the backdoor to going public and opted for the front door through...
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The business of calm

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Last week was a long one. The stress of the election coupled with the pandemic has a lot of us looking for ways to relieve anxiety and invest in wellness from the comfort of home. Increasingly, many are resorting to mental health and meditation apps. Calm, a meditation app, topped Apple's health and fitness category on Election Day — and other mindfulness apps like Headspace weren't far behind.  Why are these apps popular? The anxiety-inducing times, along with poor access to mental healthcare and high smart phone penetration are big contributing factors. However, these are not the only ones. For me, the biggest factor is that the companies making these apps have finally figured out that they are content creators and not just app makers. The features that were available through these apps 5 years ago were a lot more rudimentary compared to what we have today, and so was the content. These apps have heavily invested in improving their content. It's telling that the biggest a...
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Bad signs for the epic market rally

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In the previous post, I discussed reasons that the stock market is rising despite the economic devastation of the pandemic. In this post, I’ll discuss ominous signs from the market rally: Top 1% account for most of the gains: The market is very top-heavy. 1% of the stocks in the S&P 500 - Alphabet, Amazon, Apple, Facebook and Microsoft - account for more than a fifth of the S&P 500’s market value. While those tech giants have gained around 40 percent so far this year, the 495 other stocks in the index have collectively lost a few percentage points. This is bad because the US workforce is concentrated in the other 99% of the stocks. Insider selling is booming: Some leaders of corporate America are skeptical about the sustainability of this rally and are rushing to cash out. According to CNN Business and TrimTabs Investment Research, insiders have dumped more than $50 billion worth of shares since the start of May. The same source also notes that August is on track to be the thi...
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