Daniel X. Bustamante, Co-Founder and Lead Coach

I was recently forwarded an article detailing how a school teacher lost 90% of his savings trading on Robinhood. Last year, I had the unfortunate pleasure of reading about a 20-year old that ended his life due to an error on his Robinhood app.

It was angering.

Yet, here we are again in 2021 with the GameStop saga almost over and Robinhood and others testifying in front of Congress. Let me start by saying this; When I first started teaching in 2014 I was still a portfolio manager at a long/short hedge fund (small albeit, but nonetheless.) My goal was to get people away from making these big mistakes. Away from the nonsense that is prevalent in the trading and investing education industry. By that I mean:

  • Made up strategies
  • False truths of ‘trading like a hedge fund’
  • Using indicators

Plus the rest. As I started I was able to reach a lot of people. The first group of students I trained turned out to be amazing traders. In fact, 4 or 5 of them are solely traders until this day. One of them is a Commodity Trading Advisor (CTA) now.

You know what the difference was between them and the New Age Robinhood Traders? They listened and did not come into this thinking they knew everything.

Trading and financial markets are complex. Far more complex than we, or anyone for that matter, can teach you in a single educational course. In fact, I say this exact thing every time I teach our OptionsAbilities course. The way I teach, the way we teach at StockAbility™, is to get people to understand the framework of doing the right things over and over.

The last few weeks have highlighted how easy Robinhood has made it for people to download a simple and easy-to-use app. How they have made trading ‘easy’. In fact, I think their simplicity is a good thing. However, what it encourages is what most of what our generation, in my opinion, has been programmed to do; not have to use critical thinking.

We want everything fast and easy and get frustrated when it’s not. We want to blame others or find some way to point the finger instead of taking that responsibility. It’s hard to blame the Robinhood generation of traders. They want that fast buck without working for it.

I am telling you here and now. I have seen millions lost and made on a monthly basis in my professional career at the institutional level. It’s a weird thing, at first, to witness, but, you get used to the swings. The issue today is that it seems that the new-age day traders couldn’t care less about grinding it out and learning.

In fact, you saw this happen when Robinhood suspended trading on GameStop causing them, inevitably, to have to face Congress to then educate them. The blame was pointed at Robinhood and the ‘bad hedge funds’ who they were “colluding” with.

All I could think of when that was happening was “How many of these traders at Robinhood are on margin borrowing all pinpointed on Gamestop?” It’s dangerous and could have been bad for Robinhood and the entire system. So, yes, I agree with what they did limiting the trading on those stocks. However, and this is important, I do not agree with what they did by not allowing people with cash accounts to not trade those stocks. Because after all, in a cash account, you can only lose as much as you have available.

Robinhood has found a niche: people who know nothing about the markets but want the ability to have some ‘fun’ on the side. The fact that last year a 20-year old kid decided to take his life is nothing to joke about and it makes me mad to see the type of neglect most take into investing in the markets. But again, what I realized in my years doing this is, like any profession, there are those that separate themselves to get to an elite level at what they do.

So day trading becomes something that you can properly learn to do, in fact, let’s call it investing, because really, day trading is incredibly hard. There is no fast way to make a lot of money doing this. Really. If you have never done it, spend 1-2 hours researching the process that undergrads go through just to make it to a top-tier hedge fund or Investment bank. Research the likes of the top 20 CTAs or Hedge Fund managers in the world. I can promise you this. None of them are using daily watch lists, indicators 8-hours a day of ‘live trade rooms’ or for that matter, following and trading anything and everything under the sun just because it is available to them.

No. It’s a specialized and very difficult industry to break into. The difference with today is that anyone can learn to do this at a basic level which is what I really believe in. Everyone can learn to not chase stocks like GameStop ‘just because’. They can learn to put time into understanding the inner-workings of the how and why the market moves work. Don’t let me fool you; I sat back and watched that GameStop scenario and felt the FOMO too! I mean, who likes to sit back and say ‘that could have been me?’ But you stick to your rules.

I’ve seen it before and we’ll see it again. Opportunities are all around in the markets but it takes removing yourself from the “groupthink” and standard way of doing it to really learn how to do this.

Whether or not the new-age Robinhood Traders prevail or not time will tell. However, one thing is certain: They have democratized investing for everyone and I am all for that.

Thanks for reading.

Daniel X. Bustamante

[email protected]