Tech companies, electric vehicle makers, and some meme stocks are part of the overall mix of stocks in Robinhood users’ portfolios, according to a new index from the brokerage app aimed at new investors.
and shares of AMC Entertainment Holdings’
It all goes to show that Robinhood users are buying and holding onto companies “that they know, understand, and believe in for the long term,” the company said in an announcement Friday morning Unveiling of the Robinhood Investor Index.
“The index captures how our clients invest based on Robinhood’s 100 most owned stocks,” the company said in a statement.
“Unlike most other indices, it is weighted by conviction rather than dollars. We measure a client’s conviction for each investment by looking at the percentage it represents in their portfolio,” added Robinhood.
““Unlike most other indices, it is weighted by conviction rather than dollars. We measure a client’s conviction for each investment by looking at the percentage it represents in their portfolio.’“
“And to ensure all clients are equally represented, we average the conviction for each investment across all clients, whether they have $20 million or $20 million in their account,” it added.
“The Index does not reflect an individual investor’s holdings or performance, but is an overall view of what our clients invest in on a relative basis,” Robinhood said, noting that the Index is updated monthly. (The index does not include exchange-traded funds or cryptocurrencies.)
For all of 2021, the 100 most popular stocks for Robinhood users outperformed the overall Nasdaq Composite, and now the two are essentially level, according to Robinhood data.
is down nearly 23% year-to-date. The Dow Jones Industrial Average
is down almost 12% and the S&P 500
is reduced by 15% during this period.
“As investors grapple with volatile stock markets and assess the likelihood of a recession, Robinhood hopes it can be useful for users to see where others are putting their money.“
“Validation is really, really important to a portion of our investors, and they’re going to find that very valuable,” said Steve Quirk, Robinhood’s chief brokerage officer.
In other words, validation is effectively knowing that a specific group of people are taking the same approach; For some it helps to feel that they are not alone.
Of course, there can be pitfalls in following what others are doing, but Quirk noted that the index is just a data point to inform investors’ decisions.
Other indicators paint a bleak picture of the stock markets. More than half of people voted that stock prices will fall in the coming six months, according to the latest ssentiment survey by the American Association of Individual Investors.
But that could be a “buy” signal because the organization views the sentiment poll as “a contrarian indicator,” such as an opportunity for value.
The most prominent sectors in the index include consumer discretionary, technology and consumer services, said Robinhood.
In early 2021, meme stocks like GameStop soared in value, buoyed by social media support from places like Reddit’s WallStreetBets.
But Robinhood was heavily criticized for temporarily halting orders for GameStop and other companies during the trade frenzy. It was a necessary step because collateral requirementsCEO and co-founder Vlad Tenev later said, also emphasizing that the vast majority of Robinhood users are Investors buy and hold instead of traders keeping an eye on short-term plays.
Now, Robinhood faces a new challenge: rough stock market conditions are hitting users’ portfolios and creating headwinds for the company itself. Last month, Tenev announced staff cuts of 23% due to weaker economic conditions affecting trading activities and reducing the value of their holdings.
Assets under custody fell 31% from the first quarter to $64.2 billion in the second quarter, Robinhood said in its second-quarter earnings results.
Shares are down nearly 40% year to date.