Making a Game of Investing Never Works

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Making a Game of Investing Never Works

By Charles Mizrahi, Founder, Real Talk

Dear Real Talk Reader,

“Charles, could you tell me about your latest ‘play’?”

That’s all it took to tick me off. 

I didn’t have my morning coffee yet, and I was already a bit cranky.

So, I went off on my colleague…

I told him how I hate the word “play” when it refers to investing.

If you want to know more about my latest recommendation, no problem. 

I’m more than glad to share it with you.

But it really grinds my gears when people gamify investing. 

That’s why it shouldn’t be a surprise to you that I’ve never liked Robinhood…

Newbie Investors

Robinhood has a trading platform on a cool app that lets users buy stocks, gold and cryptocurrencies. 

The company was founded about a decade ago and doesn’t charge commissions. 

In other words: Trading is free. 

And its marketing strategy is focused on millennials. 

So, its easy-to-use app attracted tons of young users during the COVID-19 pandemic.

At one point, Robinhood had a confetti feature to celebrate trades — until regulators got on its case.

It racked up 21 million active users, and the sky seemed to be the limit.

Robinhood was soon hailed as a “disruptive innovator” that was going to change the world.

And at the end of July 2021, the company went public at $38 per share. 

A few days later, it more than doubled! 

Pretty soon, I got a few emails from subscribers asking if I was going to recommend the stock.

My answer was firm: “NO.” Here’s why…

No Play

Robinhood’s business model and gamification of investing was a big red flag.

The user base was growing because of the lockdown and a soaring market.

Without those two conditions, I couldn’t figure out how they would continue growing.

In addition, half of the company’s young customer base had no investing experience. 

Getting people with no investing background to trade and take risks is just plain wrong. 

You’ve gotta be nuts to think that you could build a brokerage business off of that user base.

The company was an accident waiting to happen.

In fact, here’s what I said back in March 2021, a few months before the initial public offering (IPO)…

“I think the company does a big disservice to newbie investors and traders.”

And since then, Robinhood’s revenue per user fell off a cliff.

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Revenue per user plummeted once the lockdown was over and the market fell. 

(Click here to view larger image.)

Revenue per user is down from a peak of $137 to $56. 

That’s not good for a company that’s supposed to disrupt the financial industry. 

The wind has come out of Robinhood’s sails as it continues to lay off more of its employees.

And Robinhood’s stock is now trading 76% off its high.

While many investors got excited about the company’s story…

They forgot to look under the hood to check out its business model. 

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In the Clouds

There was no way that Robinhood was worth $30 billion at its IPO.

And it was pure fantasy to think it was worth close to $60 billion a few days later, either. 

At $60 billion, Robinhood’s market cap was just a little bit less than brokerage firm Charles Schwab’s.

There were even comparisons of Robinhood to Schwab. 

But that’s like comparing a Little League Baseball team with the New York Mets because they both play baseball. 

That’s pure poppycock. 

And to think … Schwab generates billions of dollars in profit, while Robinhood isn’t profitable. 

I wonder if those who bought shares at $50 or $60 took a moment to think about that.

Because at the end of the day, a stock is a piece of a business.

So, if you buy companies that are more story than substance, you run a big risk of losing your money. 

But if you buy businesses that are more substance than story, you can make money and sleep better at night. 

Those are the kind of companies I recommend in Alpha Investor

In fact, I’ll be coming out with my latest recommendation to the portfolio soon.

So, Alpha Investors should keep an eye on their inboxes for it.

And if you haven’t joined the family yet, find out how to become a member right here.

With our strategy, you don’t have to worry about losing sleep — no matter what the market does.


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Charles Mizrahi
Founder, Real Talk

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