How Robinhood Is Changing Stock Investing

When individual-investor communities, not institutions, drive security pricing

John Rekenthaler 6 April, 2021 | 1:11AM
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Robinhood

Not Fully Convincing

Last summer, when I puzzled over the reasons behind the U.S. stock market’s spectacular recovery--which struck me as premature, given that the economy was in a deep recession, with no signs that the coronavirus would be eradicated anytime soon--several readers proposed the following:

  1. The government had flooded the system with cash.
  2. This cash had not only supported asset prices, but had also fueled investment speculation.
  3. This speculation came from retail investors, who were feeling flush, because they had cut their spending while maintaining their income.

I was dubious. For the most part, I adhere to conventional finance theory, which emphasizes rationality. It was not that investors had behaved rashly. Rather, I had failed, by being too slow to recognize the impending economic recovery. Also, the rally was global, meaning that U.S.-centric explanations were not sufficient.

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About Author

John Rekenthaler

John Rekenthaler  John Rekenthaler is Vice President of Research for Morningstar.

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