By William Davis
The story of Robin Hood has been told, illustrated, rhymed, and acted, often badly, for five or six hundred years. Traditionally depicted in Lincoln green tights, Robin, along with his merry forest chums, was said to have been a champion of the common folk — fighting against injustice while remaining loyal, somehow, to the guys mostly responsible for it. Typically portrayed as a highly skilled archer and master swordsman, Robin, or Robyn as Maid Marian would have called him, is said to have robbed from the rich and given to the poor. A “heroic outlaw” the story goes. But still an outlaw. And still just a story.
The “Robin Hood” of legend was so called because it was seen as an appropriate name for a bandit
Unremarkably enough, the legend of the man in tights took another turn in 2012 with the creation of Robinhood Markets Inc., a Silicon Valley startup promising to bring the bounty of the big, mean investment markets to the fragile little masses. Conjured up by a couple of Stanford University students and pointed straight at millennials, Robinhood’s smartphone app aimed to make trading stocks and ETFs quick and simple, And, of course, free.
It has long been suggested that “Robin Hood” was a stock alias used by thieves.
This new take on an old theme garnered plenty of attention – Robinhood and its band of familiar characters has amassed some six million users and a valuation of $5.6 billion. How, a reasonable Sherriff of Nottingham might ask, do these guys get so many fancy bows and arrows and still offer free trading to echo boomers with cell phones? That’s easy Sherriff: Robinhood makes money by sending customer orders to high-frequency traders in exchange for cash. Whoa. How’d King Richard miss that one?
The first known example of “Robin Hood” as ordinary name for an outlaw dates to 1262 in Berkshire.
In the brokerage industry, it’s called “payment for order flow,” a controversial but altogether legal practice where firms take a rebate, often sizable, for directing client orders to mysterious high-frequency traders. Supporters of the practice say that routing orders to these speedy dealers benefits individual investors because they can get better prices than they would on an old-fashioned exchange like the NYSE. Providing, of course, the firm passes the benefit, which brokers call “price improvement,” down to the customer. Uh oh.
Historians and folklorists have suggested that “Robin Hood” was a stock alias used by outlaws in general who did not want to reveal their identity.
Alas, our intrepid Robinhood doesn’t publish data on how much price improvement it actually gives customers. Tellingly enough, other brokers in the online shire, not least of which E*Trade, Charles Schwab, and TD Ameritrade, do. The cynical upshot: When buying or selling shares on Robinhood, the app is likely executing the trade at a slightly worse price than another broker would. Commission-free the story goes. But still not free. And still a story.
What the numbers are saying…
- $30.8 billion
Alibaba’s record-setting “Singles Day” sales in the 24-hour span that began at 12 a.m. Sunday
What folks in the trenches were saying…
“The funds getting hit the hardest in October are the ones taking big market risks. They’ve been increasing their net exposures [to the market] and their investors are paying the price.”
- Larry Newhook, chief executive of asset manager Alpha Innovations
“The basic advice is longstanding: Regard any short-term trade as no more than a punt and expect to lose your stake.”
- James Mackintosh, senior columnist, The Wall Street Journal
“It just really felt like people were throwing in the towel today. It’s going to be interesting to see what happens tomorrow.”\
- Rob Bernstone, managing director in equity trading at Credit Suisse Group
What the facts are saying…
- 10 years ago last week, in the depths of the financial crisis, the Dow industrials fell 443.48 points, or 4.9%, to 8695.79 and were off a record 929.49 points over two sessions.
- 19 years ago this week, President Bill Clinton signed into law The Gramm-Leach-Bliley Act — or the “Financial Services Modernization Act” — essentially repealing the Glass-Steagall Act of 1933, which banned banks from the brokerage business.
- 20 years ago last week, U.S. District Court Judge Thomas Penfield Jackson found that Microsoft was a monopoly. The next trading day the stock dropped as much as 8.5% to $84.38 before it recovered to close the day at $89.94. Less than two years later, an appeals court overturned much of the ruling.
- 25 years ago last week, Boston Chicken — one of the hottest IPOs in history hit Wall Street — went public at an initial price of $20 a share. The stock leapt 142.5% to close at $48.50 (or 269 times earnings), giving it a market value of $800 million. Less than five years later, the company filed for bankruptcy protection.
What folks with an ear to the Street are saying…
“Tesla should make good use of the improved quarter and the rallying stock price to do what it has needed to do all year — raise money by selling stock. Investors may lose out but the extra cash is necessary for Tesla to succeed in its long-term goals.”
- Heard on the Street columnist Charley Grant