At first, it was akin to a brand new toy for traders…
Robinhood, the free trading platform.
Paying zero commissions inspired a new generation of traders to begin their journey.
It’s possible that enthusiasm fostered the growth of wallstreetbets on Reddit, a cult like band of up and coming traders who will literally trade anything that moves.
The freemium model we’ve come to know and love on social media (Facebook, Twitter, Snap, LinkedIn) made its way to Wall Street.
However, sometimes in life, you get what you pay for.
I had a lawyer friend help me on a contract once, as a free favor, and the end result was so bad that in order to fix all the mistakes it cost me five times what I would have initially paid a top attorney.
Same thing with Robinhood.
In March, when the market was tanking, and as volatile as we’ve ever seen it, the Robinhood platform continuously crashed.
It was clear that when tested, it wasn’t ready for the big leagues.
It’s possible, the even more troubling aspect of Robinhood is that the reason people trade on a free platform is because they don’t have a lot to trade with.
Because these traders have limited funds, they go after the cheap stocks with the hopes of legendary returns, which unfortunately often results in bitter lessons of what not to do.
A quick glance at some of the 100 most popular stocks on Robinhood shows you everything that’s wrong with it.
You know what all these stocks have in common, besides disappointing returns?
They are all under $10.
This new breed of traders is trading cheap and buying cheap and the results show.
Being a widely held name on Robinhood has become like being on the cover of the video game Madden NFL… a curse.
Just this month, Aurora Cannabis (ACB) had to do a reverse split just to remain on the exchange. I hate reverse splits, it’s like they just give you another chance to lose money. The only one I ever saw work was Citigroup, and that had a bunch of help from their partner at the time, the US government.
Robinhood is the Eddie “Mush” from the movie A Bronx Tale.
However… It’s possible that DraftKings (DKNG) could break the curse.
It’s one of the Top 100 on Robinhood but it also just crossed $35, hitting another all-time high.
It has over a $10 billion valuation which is impressive by itself.
Now consider that it’s a sports betting site and there are no sports.
How is it doing that?
Well, we got a glimpse this weekend when The Match 2 took place.
Tiger Woods and Peyton Manning took on Tom Brady and Phil Mickelson in an epic golf battle for the ages.
If you missed it, CLICK HERE to watch the shot of the day.
They entertained millions of people despite playing in a monsoon and every bit of it was “must watch television.” Especially when you consider the lack of alternatives.
You know who else got seen by millions?
They were covering every second of it and people were able to bet on anything and everything you could think of.
It was an amazing look at how much action they could derive from a single game.
I don’t think I was the only one to notice as the stock has popped following The Match 2.
A quick google search of DraftKings, The Match 2 reveals 849,000 results.
Where Aurora provided fool’s gold, DraftKings could have enough of a story to push this stock into the stratosphere.
It’s gone up so much, so fast that I have trouble chasing at this level but when it comes to the future of Draftkings, I wouldn’t bet against it.
CEO of The Adam Mesh Trading Group
P.S. If you want to learn some of my absolute favorite option strategies, simply email me: [email protected] with the subject: Top Options. I’ll add you to my hotlist for options education and strategy sessions. You’ll also be surprised at my renown response time.
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DKNG shares . Year-to-date, DKNG has gained 228.50%, versus a -5.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Adam Mesh
Adam Mesh started his career as a day trader in the 90’s as electronic trading revolutionized the markets. After executives at the firm recognized his unique ability to breakdown and translate what’s happening in the market, he quickly moved through the ranks gaining national attention. Mesh has been recognized by Fortune Magazine for an uncanny streak of successful trading and has appeared on every major financial media outlet. Mesh believes that the key to stock market success is to keep the strategies simple enough so that they can be repeated. “Consistency and Discipline” are always found at the base of every great success story. Adam can be reached via email at [email protected] More…
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