How Well Did The Robinhood Crowd Do In 2020?
Robinhood's 100 Most Popular stocks show us that some retail traders could teach Wall Street a little bit about alpha.
Happy Thursday, investors. Welcome to our fourth edition of Business As Usual, a digest covering happenings at the intersection of finance, culture, politics, and the things that fall in between.
After taking some time to digest what the biggest stocks and ETFs of this year say about the broader trends and happenings that broke out this year, I’ve been left thinking about Robinhood and my Robintrack roots. Only six months ago, I was writing weekly recaps of the stocks that the Robinhood crowd (mostly Millennials and some Gen Zers) were buying, selling, and holding. It was an eye-opening experience and provided some insight into niche and broad trends on markets. After Robinhood decided to pull the plug on the publicly-accessible data, we were left in the dark.
In the dark, I started to wonder: “how are those traders doing?” Millions of new traders came to Robinhood in 2020, many without extensive experience. However, my interest was piqued once more after seeing a graphic from Goldman Sachs that indicated that retail investors outperformed the pros. I wasn’t skeptical or surprised, but I was very interested in seeing if the same could be said specifically about Robinhood users.
I indexed the top 100 stocks on Robinhood and assigned them equal-weight in a hypothetical fund (“RH Top 100 Fund”). The YTD return (Jan. 1 to Dec. 31) of the index was 101.77%. However, I was still curious about how “the mob” performed in the aftermath of two critical events from the year. This is why I decided to measure the performance of the index YTD against performance from the COVID-19 correction back in March and U.S. election in November. The main reasons why I decided to do this is because: a) many new Robinhood users started investing in March, buying travel stocks on clearance in March; and b) because many investors bought the opportunity before the rally after the U.S. election. These two ‘entry points’ provide some more pointed insight.
And the results were telling: if you were crazy enough to buy ‘the index’ at the lows in March, you would have more than doubled your money since then. If you bought going into the election (almost two months ago), you would have made a cool 40% since then.
So in order to put this into context, I decided to benchmark the RH Top 100 against some other funds. These funds featured above are:
$SPY, which tracks the S&P 500.
$DIA, which tracks the industrial-heavy Dow Jones Industrial Index.
$QQQ, which tracks the tech-heavy NASDAQ 100.
$ARKK, an active fund by ARK Invest which has had a stellar year.
$IPO, an active fund which tracks the success of IPOs up to two years after they come to market.
Though the passive index strategies didn’t do too poorly (they’re all in grey), I think this really echoes home the case that stock-picking had a really successful year. Subscribers might remember that I published a piece in defense of the active fund in November. I think there’s just something powerful that the active funds are getting exposure to that you simply won’t find in $SPY or $QQQ, which are bloated by big tech stocks (which could be good or bad, it kinda depends!)
If you want to take a closer look at the top 100 stocks and what contributed to the success of the index, you can access a download of the end-of-year edition
. If you’re a tinkerer and want to tweak the index or take a look under the hood,
you can access the live spreadsheet here and make your own copy (2022 edit: the Top 100 holdings spreadsheet is now updated in real-time and can be accessed here). Fair warning, it will update the 1yr data daily going forward.
In conclusion, I think the Robinhood crowd has done beautifully.
Though this isn’t a perfect methodology, I think it serves as some sort of indication of the success that “the mob” — the millions of retail investors — are having in aggregate. I’m inclined to keep an eye on the RH Top 100 and see which stocks rise into the list or get booted off in the months ahead, so we’ll cycle back on this in the months ahead.
That said, that’s a wrap on this edition of Business As Usual — and on this year! Enjoy the next few days off and I’ll see y’all next month.