By Shawn Langlois, MarketWatch
‘They make it so easy for people that don’t know anything about stocks. Then you go there and you start to lose money.’
That’s Richard Dobatse, talking with the New York Times about his painful experience trading stocks — and ultimately losing a fortune — on the Robinhood app.
Dobatse explained in the interview that he’d been drawn into the app’s bells and whistles, which made flipping stocks and dabbling in more complex investments feel like a game.
He started out by funding his account with $15,000 in credit card advances and then took out another two $30,000 home-equity loans as he continued to lose money early. His luck changed this year, and his account value skyrocketed about $1 million in a matter of months.
Then it all fell apart — his account value this week: $6,956.
“When he is doing his trading, he won’t want to eat,” Tashika Dobatse, his wife and mother of his three children, told the New York Times /zigman2/quotes/202090840/composite NYT +7.06% . “He would have nightmares.”
Dobatse’s story follows closely on the heels of the tragic death of Alex Kearns, a 20-year-old rookie trader who killed himself after seeing a negative balance of more than $700,000 in his Robinhood account. “How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?” Kearns wrote in his suicide note.
Inexperienced traders have likely been drawn into the brutal game in part by the likes of Dave Portnoy — it’s “the easiest game” there is — as well as other lesser-know types crowing about their successes, like you’ll see anytime you visit Reddit’s “WallStreetBets” group.
But the big winners are the exception, not the rule, when it comes to daytrading, according to Scott Smith, who tracks brokerage firms at the financial consulting firm Cerulli.
“They encourage people to go from training wheels to driving motorcycles,” he told the Times, referring to Robinhood. “Over the long term, it’s like trying to beat the casino.”
Vlad Tenev, a founder and co-chief executive of Robinhood, said that there are bigger risks for millennials than investing in the market. Not participating “ultimately contributed to the sort of the massive inequalities that we’re seeing in society,” he told the Times.