Retail Investors Vs. Institutional Investors: Understanding what the future of investing may look like after Gamestop and Robinhood

With regard to television advertising in the 1970’s, it was said that “if you do not pay for the product, you are the product.” While advertising has changed, that observation is just as true today.

This past week we all received a lesson on how the market works and how a group of Reddit users are using the hedge funds bet on Gamestops (NYSE: GME) failing stock value against them. However, the new story is how the Robinhood limited trading on some of their stocks. Why do we continue to be surprised when corporate America offers us a free service then sells our information and takes away or limits services. Did they expect us to read the terms and conditions?

Robinhood is a free trading platform. Personal information is of value to them, not the person. People were bewildered when Facebook started using our information to make money on targeted ads. Gmail reads personal emails and does the same, Credit Karma is profiting from personal credit information, and TurboTax is leveraging your financial information.

These products are not free. They are provided at the expense of personal exposure. Robinhood values customer experience because the greater your engagement, the more valuable you are to them. As you do more “free” business with them the more valuable they become.

Some are suggesting that Robinhood forgot who the customer was when in reality, the customer paying the bills was always the big brokerage houses they were exchanging information with through a process called payment for order flow.

Yahoo finance, E*TRADE, and Robinhood have all helped democratize the market. They have allowed everyday investors to buy and sell stocks and learn about companies instantaneously. These companies have removed barriers to entry to ensure anyone with a smartphone or computer can place a trade and have afforded trading convenience. These apps also limit the need for extensive research and analysis when purchasing a stock.

Most part-time investors still do not understand market capitalization. It is why old school investors cannot make sense of stocks like Netflix (NASDAQ: NFLX) or Tesla’s (NASDAQ: TSLA) Value. They fail to factor in consumer interest, customer experience, and the future we want to realize.

Financial brokers are having a hard time keeping up while considering value as the driving factor. New investors are buying stocks regardless of profitability, Price-to-Earning Ratios, or Debt-to-Equity. Many of these companies are helping create the world we want to live in, fair pay for employees, customer experience, and quality of products. The strongest investors in the future will be the ones who best navigate these obstacles.

Written by James Giacopelli. Have you read?
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