Robinhood Traders Aren’t Very Good

Robinhood Traders Aren’t Very Good

over 3 years ago2 mins

Mentioned in story

Have you been tempted to dabble in stock trading in recent months only to find your returns trailing the market? Turns out you’re far from alone...

What does this mean?

As stocks continue their rally from the lows of mid-March, data scraped from retail investors’ Robinhood trading accounts show how hard it’s been for ordinary Joes or Janes to pick stocks that can beat the market. Data from Quiver Quantitative shows that the average Robinhood trader's returns over the past 13 months are nearly flat, while the S&P 500 – the benchmark for US stocks – has climbed 7%.

(Source: Quiver Quantitative)
(Source: Quiver Quantitative)

While this appears a little, well, embarrassing, a closer look reveals that it’s not just ordinary traders who would’ve been better off just sticking their cash in a S&P 500 tracker fund. Even seasoned pros like Warren Buffett have struggled to beat a market where the gains have been concentrated among the biggest stocks – think Amazon, Apple, and Alphabet. For an illustration of how much the average US stock has underperformed the big’uns, check out how the equal-weighted S&P 500 index (in red) has trailed the standard, market-value weighted index (in blue). Markets like this are tough on stock pickers.

(Source: Koyfin)
(Source: Koyfin)

Why should I care?

As well as being fun 🤓 tracking which stocks other retail traders are piling into – or avoiding like the plague – could help inform your own investment strategies. Just look how Robinhood’s clients are currently huge fans of the exchange-traded funds (ETFs) tracking the oil price, like USO and UCO. Could that be a contrarian signal that the oil rebound will struggle to continue?

(Source: Quiver Quantitative)
(Source: Quiver Quantitative)

Another piece of so-called alternative data attempts to infer sentiment on stocks from posts on the Reddit forum Wall Street Bets. According to Quiver, Redditors are currently very down on the hospitality and entertainment group MGM Resorts – information that might prove useful if you’re thinking of buying some shares.

(Source: Quiver Quantitative)
(Source: Quiver Quantitative)
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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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