Seeking A Greater Fool Than I: Bloomberg Article Points To 'Robinhood Posse' As Pushing IPO Valuations Beyond Good Sense

The IPO frenzy of the past week is part of a larger picture that has taken shape this year, and Robinhood traders are a big part of what's behind it, Bloomberg reports this weekend.

Pandemic Idle Time: AirBnB Inc ABNB, DoorDash Inc DASH and C3Ai Inc AI each saw their valuations double after their listings this past week. Such first-day rallies this year are almost three times bigger than the average of the last 40 years, according to Bloomberg.

"While Federal Reserve stimulus may explain some of the frenzy, it’s hard not to also consider who rules public exchanges these days: the Robinhood posse," the financial news outlet said.

The convergence of no-commission trading and the pandemic has ushered in a new chapter in the history of stock trading.

“There seems to be an entire subculture of people that sort of follow the same things, talk to each other on social media and drive enthusiasm for individual issues. And sometimes it makes no fundamental sense to anybody,” Bloomberg quoted Art Hogan, chief market strategist at National Securities Corp., as saying.

Individual investors now make up a fifth of equity trading volume, in the same league as market makers and high-frequency traders, according to Bloomberg Intelligence.

Bubble Veterans: While acknowledging some differences, industry professionals have been talking a great deal lately about a possible replay of the 2000 dotcom bubble-burst.Outsized bursts of valuations lend credence to the idea that enthusiasm has outpaced reality.

Jay Ritter, professor of finance at the University of Florida’s Warrington College of Business, said this has been a demonstration of the "great fool’s theory" of trading: "They might say, ‘I think it’s going to go up even higher and I can sell my shares by waiting to sell to a greater fool later on.’”  

Photo courtesy of Robinhood.