Attention Economy


Wednesday, February 17, 2021

Useful Financial Advice for Novice Traders

How to avoid losing all your money on investing apps
https://www.vox.com/recode/22277998/robinhood-investing-app-alternatives-betterment-stash-acorns-wealthfront
“Particularly worrisome are “herding events,” including those fomented in Reddit’s WallStreetBets community that encouraged hoards of people to invest in certain stocks, like GameStop and AMC. On Robinhood, people were already more likely than other retail investors — people who aren’t professionals — to invest in the same stocks as other users, according to Christopher Schwarz, faculty director of the University of California Irvine’s Center for Investment and Wealth Management and one of the authors of a paper looking at outcomes of investor behavior on Robinhood. When too many people crowd a stock, “the price of the stock overshoots what it should be and over subsequent days it corrects.”
The study, which was conducted using Robinhood trading data from 2018 to 2020, found that those who invested in the top 10 newly purchased stocks saw returns in the next month that were 5 percent lower than that of the S&P 500 index — a “pretty horrific” outcome, Schwarz said. Robinhood is the only trading app that’s disclosed user holdings so the researchers did not compare investors’ performance on its competitors”.


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