Does Robinhood Work for Prince John?
It’s Thursday, Great Ones … and you all know that means Reader Feedback!
Now, I know Thursdays are supposed to be all about Great Stuff readers, but today’s a bit different. Today, we’re talking about Robinhood.
Quite a few Great Ones use Robinhood for their trading and investing needs. So, I feel compelled to detail a series of unfortunate events that doesn’t shine too favorable a light on the trading app.
These events involve short selling hedge funds Melvin Capital and Citadel Securities, Robinhood, GameStop (NYSE: GME) and Reddit’s internet message boards — in particular, WallStreetBets. I’ll warn you: There are no likable actors in this tale.
Our story begins with Robinhood. The trading app launched in 2015, providing free, bare-bones trading services to anyone with a smartphone. To facilitate these free trades, Robinhood partners with companies like Citadel Securities, which buy user transaction data. This is Robinhood’s primary revenue stream, bringing in about $100 million in the first quarter of 2020 alone.
Remember Citadel Securities. That name will be important later.
Robinhood helped foster a growing and healthy retail investor market, eventually bringing about dedicated internet message boards of like-minded investors to offer advice and make money. One such board is Reddit’s WallStreetBets. Robinhood is by far the most popular service among such retail investors.
At some point last year (it’s hard to pin down exactly when), WallStreetBets participants discovered that more than 130% of GameStop’s float — shares available for public trading — was sold short. This seemed rather ridiculous. How could more shares be short than were available for public trading?
These industrious (and potty-mouthed) investors decided to take advantage of the situation. If they could buy enough GME stock and call options, thus driving the price up, it would force short sellers to buy back GME stock. This is called a short squeeze … where short sellers must quickly buy back a stock to minimize losses.
WallStreetBets’ (legal) strategy worked extremely well. GME is up 1,400% this year, squeezing many short sellers in the process. Many retail investors over at WallStreetBets have literally made millions.
However, GME’s rally was particularly painful for one major short selling hedge fund: Melvin Capital.
Melvin Capital is no amateur. It was one of the top-performing funds in 2020. Furthermore, GameStop has a very poor business model — selling and reselling physical video games and accessories in an increasingly digital market. GME was an excellent choice for this legal bearish strategy.
Nevertheless, Melvin shorted a lot of GME shares … and it lost billions due to WallStreetBets’ short squeeze strategy. So much so, rumors floated around Wall Street that Melvin Capital might go under due to its sideways short position.
But Melvin got a lifeline. Remember Citadel Securities? The company that provides major revenue for Robinhood? (It also receives quite a bit of money by using Robinhood’s data, by the way.)
Citadel and its partners stepped in with a $2.7 billion investment for Melvin to help stabilize the struggling hedge fund. Hedge funds gotta hedge, after all … and they apparently look out for each other. Who knew?
Meanwhile, WallStreetBets continued its assault, looking to squeeze even more short sellers out of GME. Short interest hadn’t gone down, you see, and it actually rose to more than 140% of GME’s float. On a personal note … that’s just an insane amount of short interest.
Then, an interesting development happened this morning. Robinhood blocked buying GME stock and options.
Robinhood users could sell the shares or close out options positions, but they could no longer buy. And that includes WallStreetBets’ retail investors … they could no longer pressure short sellers. The jig was up, as they say.
With all of Robinhood buyers removed from the market, GME shares tanked hard, falling more than 60% at one point. My questions are these:
- Did Melvin use Citadel’s $2.7 billion to double down on the GME short position?
- Did Citadel pressure Robinhood to block GME trading on its app to support its Melvin investment?
- Is Robinhood actually working for Prince John?
As for whether or not Citadel pressured Robinhood to act … one would hope not. That means Citadel shot one revenue source in the foot to save another. The company makes quite a bit of dough off its Robinhood deal, and souring Robinhood users would only hurt that revenue stream.
Uncovering the truth, however, would likely take an SEC investigation — which I sincerely hope happens. There’s just too much coincidence here.
At best, Robinhood is just looking out for its users’ well-being … albeit with very inconvenient timing for many retail investors with millions of dollars on the line.
At worst, this is market manipulation in plain sight.
Regardless … I don’t like where these unconnected dots lead, nor do I like Robinhood’s behavior. What’s to stop Robinhood from doing this to any other stock in the future? It sets a bad precedent and leaves a horrible taste in my mouth.
What do the Great Ones think of this hot mess? Did Melvin get what it deserved? Is WallStreetBets to blame? And what about Citadel … anything funny going on there?
Email me at GreatStuffToday@BanyanHill.com and let me know your thoughts on the situation! You might just read your email in next week’s edition of Reader Feedback. And with that, away to the inbox we fly!
Reader Feedback — finally! It’s your weekly breather where we stop yapping and let you do the talking (mostly).
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GreatStuffToday@BanyanHill.com is the one-stop shop for questions, thoughts and your favorite meme stocks. Let’s dig in.
Green Picks, Shoots and Leaves
With your portfolio, the [stocks] that you have in green to buy, does that mean to buy right now, or should I wait for a dip?
Of all your products on Banyan Hill, which would you recommend for more short-term trading? Days to months… I held on to my BABA. (Hello, Jack Ma, how you doing? :))
— Liz V.
Huzzah, Liz! I hope your Alibaba (NYSE: BABA) position is still holding up for you!
In our previous update on the Great Stuff Picks portfolio (click here if you missed it last week), current buys are marked green. That means I consider them buyable right now.
That said, it’s all up to you whether you buy in right away, wait for a pullback or dip … or just add it to your watch list and forget about it for a few months.
When we update the portfolio, however, we’ll let you know which stocks we would not feel comfortable buying at current prices, even if it’s a strong to-the-moon kinda stock. This is when you’d want to watch for a pullback if you really want in on the stock.
Case in point: Advanced Micro Devices (Nasdaq: AMD) was a hold for us last week. Then, profit-taking after its beat-and-raise quarter spurred a pullback that gave y’all another chance to buy in yesterday. Markets move pretty fast. If you don’t stop and look around once in a while, you could miss it.
And … wait, you said something about short-term trading? You want to talk about short-term trading? And we’re not talking about meme stocks here?
I’ve got you covered: Have you met Paul ?
Paul has had an incredible year with Rebound Profit Trader. In 2020, nearly 9 out of 10 recommendations were winners, thanks to one incredible strategy. This portfolio is white-hot this year (and not like GameStop “hot” either).
We Like the Stock!
I missed out on GameStop. I was lucky enough to sell NOK, which I was just hoping to dump at breakeven; I still don’t know exactly how I got the day’s high price, but I did, and I won’t complain.
Also loving DDD. I have been watching AMD since it was an IPO — thanks for the heads up.
I’m new to trading, and my brother-in-law told me about Reddit and what was said. I last night bought $500 dollars of AMC.
There are so many people out there that want to tell you what to do and buy. I find myself in the beginning buying or paying membership fees to get this information. I have almost $20,000 in Robinhood now, and I started with $1,000. I just want to make a better life for my family and my grandkids. I thank you from the bottom of my heart for this information.
God bless you,
Congratulations to both of you!
From one Joe to another, I admire your conviction for a better life for your family, and it’s the same fire that compels me to chat with you all each week and make market memes. You’re doing good, Great One.
Anyway, like I said: If you truly madly deeply await the return of cinemas, AMC (NYSE: AMC) and its newfound lifeline might be the one theater-bound roach that lives through the cine-pacolypse.
Also, Tish, if you’ve watched AMD since its ’72 IPO … I don’t know what kind of heads-up you think I gave you … but thanks! And good job timing the speeding Nokia bullet you mad lass you.
Hey Mr. GS, sir!
I love your emails and would love to get your thoughts on something that is about to happen to me for the first time in 67 years.
I have grown a good portfolio of a little over a million dollars using Mr. ‘s amazing newsletters and some of your own great tips, but in June, I will be moving from wealth accumulation to a place where I will have no paycheck (except a small Social Security check) and will need to draw from my portfolio.
My thought until now has been to get the last burst of growth that I can from the America 2.0 and other stocks and then convert everything into strong dividend-paying company stocks with the hope of living on dividends so that the portfolio does not need to be sold down.
Is this sound? What might I be missing? If you’ll answer this, I’ll get you unlimited tamales!
— Dr. J.
Solid plan, Dr. J!
Personally, at 67, it’s more than “just a bit” risky to be in anything but stable, dividend-churning value stocks — especially if you’re that close to retirement. Heck, even money market funds or bonds might be your best shot at stability right now. This is doubly true with the current ridiculous market froth and a potential bubble we find ourselves in.
In other words, it’s late to be thinking of this switch … but it’s not too late, you feel me?
Enact that plan. Don’t wait. America 2.0 stocks have a long runway for growth but consider your own investment runway before anything else. What you need … is what my colleague Ted Bauman calls “Endless Income.” It’s all about living off dividends and generating income. Click here to get started!
Now … about those tamales?
Keep em coming.
— Linda F.
Keep comin’ back, and I just might!
Would like to join. How does this work?
— Greg O.
Looks like you’re doing just fine, Greg, if you get Great Stuff in your inbox.
If you’re wondering how you ended up in my inbox (and now your inbox again), well, there’s this thing called Reader Feedback, you see…
Hello Great Stuff, you guys rock! You explain things in such an entertaining way and are still informative.
— Jesse J.
No, you rock, Jesse! (Though, thanks for explaining why you think we rock.)
Great Stuff provided much-needed details from the Yellen misinterpretation about Cryptocurrencies’ main uses. Keep these thru comments coming. Kindest regards.
Thank you, José and everyone else who wrote in today! If you’re wondering why your email wasn’t above … double check that address bar and make sure you write in for next week!
GreatStuffToday@BanyanHill.com. We’ll meet you there.
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Editor, Great Stuff