He added, “It’s probably one of the biggest negative returns documented by academics.” Put another way, “if you were a Robinhood user and bought those top 10 stocks every day, you would have lost 97 percent of your money over two years,” Schwarz said. Robinhood is the only trading app that’s disclosed user holdings so the researchers did not compare investors’ performance on its competitors. The study, which was conducted using Robinhood trading data from 2018 to 2020, found that those who invested in the top 10 newly purchased stocks saw returns in the next month that were 5 percent lower than that of the S&P 500 index - a “pretty horrific” outcome, Schwarz said. When too many people crowd a stock, “the price of the stock overshoots what it should be and over subsequent days it corrects.” On Robinhood, people were already more likely than other retail investors - people who aren’t professionals - to invest in the same stocks as other users, according to Christopher Schwarz, faculty director of the University of California Irvine’s Center for Investment and Wealth Management and one of the authors of a paper looking at outcomes of investor behavior on Robinhood. Particularly worrisome are “herding events,” including those fomented in Reddit’s WallStreetBets community that encouraged hoards of people to invest in certain stocks, like GameStop and AMC. And regular people who invest in individual stocks in the short term are likely to lose money, no matter what you hear on TikTok. Many professionals spend their entire careers trying to do so, with varying levels of success. The thing is, it’s impossible to predict the market. There are potentially less risky - and equally user-friendly - app options out there. According to a number of financial advisers, the app appears to be democratizing certain types of risky investing, like day trading.
The recent astronomical rise of meme stocks brought many people to the stock market for the first time, typically through Robinhood, the commission-free stock trading app that has promised to democratize access to the stock market.
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