Dave Portnoy has become the poster child of the Melt Up investing mindset – as we covered yesterday. But it’s not just him.
In fact, one brokerage has come to define this mentality. You probably already know it by name… I’m talking about Robinhood.
The brokerage made its name by starting the trend of zero-fee trading. And this year, it has shepherded in a new band of investors… the kind of folks that can propel the Melt Up in stocks to incredible heights.
Let me explain…
We’ve seen a rush of new traders in the market lately. The surge in visits to Robinhood’s “Learn” page shows it. Daily visits to that section of its site soared 250% between January and June.
Sentiment data wizard Jason Goepfert (of SentimenTrader.com) has been tracking trading activity on Robinhood, too. The numbers have been staggering…
For example, just take the number of Robinhood traders holding leveraged broad market exchange-traded funds (ETFs). In December, the number was roughly 20,000. As of May, nearly 100,000 Robinhood users were holding leveraged ETFs.
That, my friends, is a stock market frenzy at work. This is the Melt Up in action.
If you want more proof that Robinhood has become ground zero for retail-investor mania, you just need to look at the complaints…
Generally speaking, the various U.S. consumer protection agencies don’t get a whole lot of complaints about brokerage firms. The rules are pretty clear. And both sides are supposed to know how the game works. But over at Robinhood, things are a little different.
This year, newly minted investors have filed more than 400 complaints against the company – roughly four times the norm for its competitors. The word in government circles is that some regulators feel like they’ve become the company’s customer-service department.
It’s notoriously hard to get ahold of anyone at the company. That’s part of how it has kept costs low.
And that, along with mountains of venture funding, is a big part of why Robinhood has helped usher in a new era of zero-fee trading.
This, as I’m sure you know, is a relatively new innovation. And boy oh boy, has it made it easier to get into the market.
In the past, trading fees could easily eat up a small investing account. Now, even major brokerages have slashed their fees since companies like Robinhood entered the scene. And that means the “dumb money” can gamble with smaller amounts without feeling like the house is taking too big a cut.
Only have $20 to invest? No problem. The trade is free.
Oh wait… That stock is $100 a share? Not to worry – Robinhood will sell you a fractional share you can afford.
Don’t be fooled into thinking these small trades don’t matter, though. These traders might not have much money on their own… But together, they can push the market around. For example, the trading volume of “call buys to open” from small traders in the options market has skyrocketed.
In 2019, there were less than 5 million of these contracts. Today, there are around 20 million. That’s a near fourfold increase in less than a year… And it’s the highest number of bullish contracts on record.
This might sound complicated. But the story it tells is simple… Small investors are making record bullish bets on stocks in the options markets. And the levels we’re seeing today are an order of magnitude higher than they’ve been at any time in history.
Simply put, there’s a new band of traders in the market. They’ve bought into the Dave Portnoy view that the “market only goes up.” And these folks will push the market higher than you could possibly imagine.
If you think people are being irrational now… just wait. This is going to get a whole lot crazier before it ends. And I want to make sure you get the most out of it that you can.
That’s why I continue to pound the table on stocks. And if you aren’t invested, you need to change that today.
Good investing,
— Steve
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Source: Daily Wealth