- Robinhood is coming to UK shores
- But you shouldn’t use it to buy GameStop
This week, in a first for the Investors’ Chronicle, both stocks in our ideas section are US-listed.
We make no apologies for this. While the UK market remains our bread and butter, it is hard to overstate the importance of US equities to investor portfolios in 2023. A mind-blowing 70 per cent of the MSCI World and 63 per cent of the MSCI All-Country World indices are now allocated to US shares. We’ve even permanently allocated one of our crack writers, Arthur Sants, to the land of the free.
Given the appetite, it’s also little surprise that popular US trading platform Robinhood (US:HOOD) has just announced plans to launch in the UK, after two previously aborted attempts. The group hopes to offer investors on this side of the pond commission-free trading in US exchange-listed stocks and American depositary receipt (ADRs), although not the options contracts with which it is closely associated.
Robinhood and those easy-access derivatives are still best known for their role in ‘Gamestonk’, the unprecedented pandemic phenomenon in which hordes of the app’s users bid up shares in failing US videogames retailer GameStop (US:GME) from a low of $2.57 in 2020 to a price of $483 on 28 January 2021. The secondary impacts included the implosion of at least one hedge fund, a Congressional hearing, and much dazed commentary about so-called meme stocks and markets’ newly shredded rulebook.
Never one to miss a trick, the Financial Conduct Authority’s website carries a page detailing the ‘lessons’ from the event. These include the reminder to investors to diversify and consider whether they are “really investing” or speculating in a stock, a piece of advice neutered by the equivocation that “whichever it is, if you choose to get involved… then you must be prepared to lose all of your money”.
More recently, spotting an opportunity to drill home its slightly ambiguous message around the risks of financial hype, the regulator took out prime ad space before the screenings of Dumb Money, the recent Hollywood film about the GameStop craze.
But having just read The Antisocial Network, Ben Mezrich’s brilliantly reported book on which Dumb Money is based, I’m not sure there is much for ordinary investors to learn. This isn’t to downplay the financial damage incurred by those blindly suckered into the irrational mania (though if it truly cared about this, the FCA might want to pitch its services to the Gambling Commission). Nor is it to overlook the new risks facing short sellers who go public with their positions.
Rather, the lessons are moot because the episode was the product of an unforeseeable set of circumstances.
Although its most ardent backers will argue otherwise, demand for Gamestop shares wasn’t built on an investment case, but an internet meme and the highly specific conditions of a global pandemic that isolated millions of bored and frustrated individuals with access to a powerful new technology. Realising they could cause a headache for a bunch of Wall Streeters in one very small corner of the market, this group piled in and created huge volatility, for what ultimately proved a short while.
But GameStop wasn’t – and still isn’t – a stock that you would own for its cash returns, growth prospects or undervalued assets. Having canned its dividend in early 2020, its sales have continued their decline in the otherwise strong industry, while net assets have continued to wither since the business smartly capitalised on 2021’s febrile market sentiment and sold $1bn in fresh equity.
If there is one lesson from this episode, it is that a company is not its stock price. If you’re going to shoot for the moon, as many GameStop investors aimed to, then you’re better off backing a company that might get you there. Ironically, Robinhood’s watered-down UK platform has a better chance of helping in that mission.
