The Capitalist Investor - Episode 87

In this week’s episode, Mark and Derek discuss the wild ride that is the Robinhood IPO! The stock has bounced back in a big way after starting out one of the worst IPOs in recent history. Is now the time to buy? Has the growth story already happened, or is the best yet to come for $HOOD? The dynamic duo reveals the three boxes a stock must check to end up in their portfolio.

Outline of This Episode

  • [2:00] Robinhood’s IPO
  • [14:40] Dangers for Novice Investors
  • [19:10] Would We Own Robinhood? Our Criteria – Management Team, Growth and Valuation

Robinhood’s IPO

However you feel about Robinhood, their rise has been remarkable. From its founding in 2013 until the end of 2020, the platform gained 13 million users. It added another 6 million users in the first two months of 2021.

In its first full week of trading, the stock jumped 57%, to $55.01, well above its initial public offering price of $38. The surge came on very little news. The information that did come out was mixed. But fund manager Cathie Wood’s ARK Investments bought the stock.

So why is it doing what it’s doing right now and do we think it should be trading? Is it dangerous for some retail investors that might get sucked in? We are big fans of retail investors and we hit on why they hate Robinhood. Its hard to be one of the worst IPO’s in history with so little investor interest, yet Cathie Wood is seemingly happy to take on those risks associated with Robinhood. The company’s flagship ARK Innovation fund has bought 4.9 million shares in the online brokerage, worth around $229 million, according to its own data. Listen to find out why we do, or don’t, like Robinhood as a company or a stock.

Dangers for Novice Investors

There are many dangers in believing someone’s “crystal ball” is so much better than anyone else’s. It’s very dangerous for any novice investor to blindly follow someone like Cathie Wood or ARK into a trade. People believe in investors like Cathie Wood and we find it strange. Everyone needs to do their own research, due diligence and weigh the pros and cons. Dud to Grand Finale? Burnout to Breakout? Momentum trade?

Would We Own Robinhood? Our Criteria – Management Team, Growth and Valuation

Whether Robinhood can continue to inspire buy in for years to come depends on whether it can evolve to empower investors to find their inner Warren Buffett or trap them in an obsession with speculation and risk. From controversy, false and misleading information to its customers, and failing to disclose how it makes its money, we go over our usual list of criteria that must be met for us to buy. Listen while we go over our view of the management team, sustainability and durability of the Growth Story, and Valuation.

Connect with Derek Gabrielsen

Connect With Mark Tepper

Send your questions and comments to us at info@SWPConnect.com

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Episode 19:
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Episode 35:
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Episode 51:
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Episode 67:
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Episode 83:
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Episode 2:
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Episode 20:
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