Prescient Or Lucky? Bloomberg Takes A Closer Look At Robinhood Traders

A weekend feature from Bloomberg looks at the success of newbie traders in this unusual year and asks whether they got lucky or if they knew something Wall Street veterans didn't.

New Gamers In Town: The convergence of new commission-free trading apps such as Robinhood, downtime in the pandemic and stimulus funding has ushered in a new generation of first-time investors.

As that convergence took shape, a dramatic fall in the stock market gave new investors a great starting point to begin placing their bets.

And then came the Fed's unprecedented interventions to prop up the market.

"In a year of extreme volatility, the stocks newbie traders love most have soared 56%, beating the usually bulletproof S&P 500 by 45 percentage points and nearly doubling the return on hedge-fund favorites," Bloomberg reports, using data from Goldman Sachs Group Inc GS. 

That has made for some cocky new traders. "Day trading is simple. It's not easy, but it is simple," says one new trader in the story. "Luck will give you a good day or week. Luck won't give you a good month or year."

They're also allowed to make mistakes, amateurish ones included, that professionals would never be able to for reasons of reputation as well as performance.

Nevertheless, spotting a favorable trend and sticking to it in a chaotic environment deserves some credit. 

Banking One Off The New Folks: Meanwhile, there are those who've already found a way to exploit the exuberance of Robinhooders, as a second Bloomberg piece this weekend reports.

Academics studied the phenomenon of "herding" on Robinhood, when investors pile into the same stock. In a paper, the researchers describe a strategy that delivers a 3.5% return for selling after herding over a stock occurs, and then buying it five days later.

What's Next: Reality may yet come crashing down for "newbie stock jocks." 

"It's been an easy market to think that you’re a genius in," says a professional quoted in the first Bloomberg piece. 

Either way, the new hordes aren't going anywhere. Among many other things, 2020 will go down as a watershed year when a new league of traders joined the investing world.