Investing

Millennials are following one of the classic rules of investing



Robinhood founders Vlad
Tenev and Baiju Bhatt.


Robinhood


Sometimes the best opportunity to invest in a stock is when
everyone else is selling and its price is declining. 

On Wall Street, this strategy is known as buying the dip.
And it’s popular because it allows investors to get into a trade
at a discounted price. (It can also backfire of course. Just
because a stock drops, doesn’t mean it’s going to go back
up.)

That’s exactly what investors using smartphone brokerage
app, Robinhood, are doing, according to cofounder Baiju
Bhatt. 

During a wide-ranging interview with Business Insider,
Bhatt said users of Robinhood, who skew younger, viewed
a market downturn in the first quarter of 2016 as a buying
opportunity. 

Anxiety over the Chinese economy sent stocks into a
tailspin for a few days, ushering in the worst start of the
year for the markets on record. The Dow Jones Industrial Average
declined about 8% between December 31 and January
15. 

“Those were the days we saw the biggest net deposits we had
ever seen,” Bhatt said.”With this younger generation, when
the market takes a slide, they see it as an opportunity to
buy.”

This, according to Bhatt, provides a counter to the
argument that investors using pure-play mobile investing apps,
which lack the human element of incumbent brokers such as Charles
Schwab and TD Ameritrade, would pull their money out if the
markets were to witness a major downturn. 

Charles Schwab, the $3 trillion asset manager, released a
study showing 75% of 
millennials reported they would
want to talk to a human adviser during “complicated” situations.
note
out by a group of analysts at Morgan Stanley
, led by Giulia
Aurora Miotto, supports the thesis of the Schwab study.

“The financial sector consumer often needs some sort of human
contact, especially when abrupt market moves lead to unexpected
losses,” the analysts wrote.

Robinhood’s brokerage app launched in March 2015 and quickly
became a favorite among younger people looking to invest without
paying a commission for buying and selling stocks. 

Since its launch, Robinhood has amassed over 2 million users who
have bought and sold billions of dollars’ worth of stocks. 

Here’s the relevant passage from the interview:

Frank Chaparro: You mentioned the Great
Recession. And that makes me think of this
question hanging over the investing space
regarding apps like
Robinhood and other online investment startups. Without someone
to guide them through the bad times, do you think investors are
more prone to pull their money out if there’s a major correction?

Baiju Bhatt: That’s an interesting question
because we have actually seen a correction since Robinhood
launched. Granted, it was not on the same scale as what happened
in 2008.

But if you remember, in the beginning of 2016 there was a pretty
significant sell-off in Q1. And there were multiple days when the
markets witnessed single-digit drops in the S&P, and that was
kind of interesting. Because we saw for the first time how people
behave when the market is going down. And the behavior we saw was
actually pretty interesting. Those were the days we saw the
biggest net deposits we had ever seen.

With this younger generation, when the market takes a slide, they
see it as an opportunity to buy. They view the market as being on
sale. It’s kind of interesting, because I remember during Brexit,

Betterment decided they wouldn’t let their customers withdrawal
money
. I think that stems from this mindset of not thinking
people should be in control of their money. It tends to be better
to give people control over their money, rather than restricting
their access to money during such times, because they’re more
likely to wait it out.

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