12 October 2020

No Mercy / No Malice: “Tulips to Tesla”

Financial crises have many causes, but generally they boil down to a few key elements:

  • easy money
  • poor regulation
  • consensual hallucination that the market always goes up

Story stocks and Robinhood have more in common than you’d think. If you want to know what Tesla’s stock will do tomorrow, just look at how many Robinhood accounts were opened today.

Scott Galloway

Interesting correlation between new users on Robinhood (a startup offering people without prior experience the means to invest in stocks – or, as they put it, on a mission to democratize finance for all) and Tesla’s skyrocketing stock price. The implication here being that this influx of new users are buying Tesla stock not because of its intrinsic value or future prospects, but because of the catching story sold by Elon Musk, thus fueling an artificially inflated valuation – and that small individual investors will get burned when the market inevitably self-corrects. In an extreme example, a 20-year-old trader on Robinhood committed suicide this summer after losing hundreds of thousands of dollars in the app. The stock market has always reacted irrationally to external events, and in this volatile context we should expect even wilder swings than normally.

Robinhood users vs. Tesla stock price

More on the subject in the video below:

The Prof G Show: Financial Crises & Asset Bubbles

Post a Comment