Quicken Loans parent Rocket Companies Inc.’s stock undefined public debut fell flat, after the mortgage lending giant’s downsized initial public offering… Shockingly, there are very few times that Robinhood investors on average performed materially worse than the market. Epic said the deal included a $250 million strategic investment from Sony, which it announced last month.
Author: Tomi Kilgore
Robinhood investors are beating the stock market — and here’s the data that proves it
It is hard to go an hour without seeing another headline related to Robinhood cross the screen, as the investing world has been captivated by the motley crew of investors that call the Reddit stock and option trading community r/wallstreetbets home.
As a chartered financial analyst with over a decade of capital markets experience, this raised two specific questions in my mind. How good or bad are these investors? And are these amateur investors responsible for the recent run-up in securities prices?
First, are Robinhood users successful investors?
To answer this, I analyzed the widely held Robinhood stocks within the Russell 1000 and compared them to the median results of the stocks within the Russell 1000.
This process essentially takes the median volatility and return profile of the widely held (defined as more than 10,000 holders) stocks of Robinhood investors and compares them to the median return and volatility of the Russell 1000 constituents.
Robinhood investors do have a reputation as risk-takers, and the data proves this. In fact, as shown in the chart below, on average Robinhood investors take significantly more risk than your average Russell 1000 stock — a risk appetite that seems to have grown since the COVID-19 crisis began.
But has their risk appetite translated into worse future returns for their holdings?
To answer this, we looked at the future 1-month returns at each point in time to see if the increased risk-taking was resulting in worse returns for Robinhood investors. For example, if we looked at the 54 securities that had over 10,000 Robinhood holders on March 8, 2018, we see they had a median return from March 5, 2018, to June 3, 2018, of 4.73% vs the Russell 1000 median return of 2.97%. The chart below shows those future results over time:
Shockingly, there are very few times that Robinhood investors (on average) performed materially worse than the market — and they appear to have done better than the market during the COVID-19 crisis.
Robinhood investors have been buying riskier stocks, but have also been performing slightly better than the market.
As for our second question, is Robinhood responsible for moving the market?
This query can be answered easily by tracking the minimum value of accounts over time.
As each Robinhood holder of a specific stock must hold at least 1 share of that stock, we can analyze the minimum dollar value of Robinhood accounts. For example, if Tesla has 300,000 holders, we know the minimum number of shares held is going to be 300,000 (1 per holder). In reality, this number is much higher, at least on a notional level, since it isn’t clear if this data includes options or not — and one cannot be hard-pressed to believe that in companies with lower share prices (such as Ford or Hertz), the average Robinhood holder will have many more than one share.
According to that simple methodology, the minimum dollar value of Robinhood holdings has jumped by 396% since the COVID low… which makes it seem pretty obvious that Robinhood investors are having a major impact on the market.
Retail investing has come into its own during the pandemic. With more people social distancing in their homes, the market has seen an unprecedented uptick in day-trading from everyday investors. Markets are now faced with a less disciplined albeit riskier faction of investors ready to take immediate action on the household names they are familiar with. This leaves more sophisticated investors with the added responsibility of following the swings resulting from Robinhooders investing in well-known companies.
Luckily, there seems to still be a sense of normalcy for lesser-known and high-growth-potential companies that are not experiencing the same phenomena.
All that we know for sure is that Robinhood investors are doing slightly better than average, and in much riskier stocks than average. It also does not look like the rapid growth in Robinhood accounts and the minimum dollar value invested is decreasing.
I would personally expect these trends of Robinhood investors outperforming the market and the number of Robinhood investors increasing to continue until the market goes “risk-off”.
Until then, it might not make sense to bet against Robinhood.
Nicholas Abe, CFA, is the COO of Boosted.ai, an artificial intelligence firm that helps institutional investors implement machine learning in their portfolios.
Author: Nicholas Abe
Fortnite creator Epic Games is now valued at $17.3 billion after blockbuster funding deal
A gamer plays the video game ‘Fortnite Battle Royale’ developed by Epic Games during the ‘Paris Games Week’ on October 26, 2018 in Paris, France.
Chesnot | Getty Images
Epic Games, the video game giant behind the hit title Fortnite, said Thursday that it was valued at $17.3 billion after a $1.78 billion funding deal.
The Cary, North Carolina-based firm said the investment came in the form of primary capital and secondary purchases, meaning some investors bought new shares while others bought stakes from existing shareholders. Epic said the investment included a $250 million strategic investment from Sony, which it announced last month.
Epic announced that a number of new investors have bought into the company, including Baillie Gifford, funds and accounts managed by BlackRock, Fidelity, Lightspeed Venture Partners, the Ontario Teachers’ Pension Plan Board, funds and accounts advised by T. Rowe Price and hedge fund manager David Tepper. Existing backers KKR and Smash Ventures also increased their holdings, Epic said.
“Having the support of leaders in the financial community accelerates Epic’s efforts to build a new kind of digital ecosystem using real-time 3D technology, services that connect hundreds of millions of people, and a digital storefront that offers a fair business model,” Epic founder and CEO Tim Sweeney said in a statement Thursday. “We are delighted to have them as part of the Epic family.”
Epic will continue to only have a single class of common stock outstanding and remains controlled by Sweeney, the firm said.
The company has become a force to be reckoned with in the $150 billion gaming industry thanks to the continued rise in popularity of Fortnite. The battle royale game now has a total of more than 350 million players, according to Epic. It has become a big revenue driver for the firm, with a free-to-play model that generates income from in-game payments for cosmetic items like skins.
But Epic is also known for its Unreal game engine software, which powers many of the world’s top games. The company also runs an online video games store that competes with Valve’s Steam.
The video game industry itself has experienced a boom in demand as consumers have turned to interactive entertainment for escapism in the face of the coronavirus pandemic. On Thursday, for instance, Nintendo posted a huge 428% rise in fiscal first-quarter operating profit, as sales of its Animal Crossing: New Horizons game almost doubled.
Epic’s $17.3 billion valuation represents a roughly 15% climb from the $15 billion the company was worth in 2018. Chinese tech giant Tencent holds a considerable minority stake in the firm. It’s not clear yet whether the company has any plans to go public.
Correction: Epic’s $17.3 billion valuation is roughly 15% higher from the $15 billion the company was worth in 2018. An earlier version misstated the percentage.
Author: Ryan Browne