There is a lesson in the Robinhood saga that has nothing to do with stocks, finance or trading. There are many lessons on these things, but this one is about perception. Perception is important.
In some cases, perception is even more important than reality. For example in matters of trust. You may be doing the right things for the right reasons, but when those reasons are unclear, the perception may be that what you are doing is wrong.
It’s because your brand is a promise. It tells your customers what you stand for and what to expect from you. When you keep that promise, you build trust. If it looks like you’ve done something that says what it stands for, you’ve got a problem. This also applies if it is just perception.
This is exactly what happened to Robinhood.
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Robinhood is the app at the center of the current frenzy of actions like GameStop and AMC. It is popular with daily traders, especially the WallStreetBets subdirectory.
It became very unpopular when he suddenly announced to his users that they would no longer be able to buy shares of those stocks on Thursday morning. This fateful move may have been necessary for risk management reasons, but the way the company handled it revealed just what its brand stood for.
The Robinhood brand is built on the promise “to have the mission of democratizing finance for all”. It’s right there on the website.
So you can see why this could be a problem like the app preventing its users from trading certain stocks. Important people who had access to hedge fund brokers and trading companies were able to continue doing business as usual. It was the “little one” that was closed.
Given that the motivation for buying stocks like GameStop and AMC was to “hang on to hedge funds,” the response has been particularly toxic.
If you are the app that ‘democratizes finance for everyone’ then it’s really bad if you feel like you’re shutting down retailers in favor of the big guys. If your brand is based on the outlaw hero who robbed the rich and gave it to the poor it’s a bad look when it feels like it’s all just a show – shut it all down when it’s hard, the rich?
Robinhood built their entire business, and especially their brand, to serve the little one who didn’t have access to the same tools as the billionaire class. Then in one day he completely destroyed that mark, again not by reality, but by perception.
Worse yet, Robinhood ruled out the possibility of buying certain stocks on Thursday and those stocks fell. Of course, you can sell any position you already have, but you can’t buy more. This meant that when the price fell, Robinhood users lost their bets. Robinhood literally cost them money.
It’s not that they played badly and lost money, it’s just the reality of stock trading. They lost money because the trading app they trusted betrayed that trust, and it looked like the game had been rigged.
The biggest lesson here is that most of what happened was completely preventable. Robinhood’s biggest problem is not only that some stocks have been delisted, but also the perception of why. The lack of real communication from the company didn’t help, just a statement about “market volatility”.
Co-founder Vlad Tenev told CNBC “To protect the company and our customers, we had to restrict the purchase of these shares.” It didn’t improve things much.
The company then sent an email containing some of the following:
It has been a difficult day and we are grateful that you are a Robinhood customer. Given the exceptional market conditions this week, we have temporarily limited the buying of certain stocks this morning. Starting tomorrow, we plan to make limited purchases of these securities. We will continue to monitor the situation and make adjustments if necessary.
It was a temporary decision, better to continue serving him, and it was not easy to do. We know this has created frustration and confusion and we wanted to clarify that.
There were other things in the email regarding SEC net equity obligations and clearing house requirements, but all of this doesn’t make sense to someone who can be relied on to do this. that you promised. It certainly does not provide “clarity”. These are just words that don’t matter to someone who felt like the app they trusted suddenly gave up on them.
Again, it doesn’t matter that that’s not exactly what happened. That’s for sure what it looked like.
The company’s email concludes, “We support you, our customers. Democratizing finance for all means giving access to more people, not less.
Whether it was really safe for someone to take out a second mortgage and put everything in a meme inventory is certainly up for debate. For this guy, however, he probably doesn’t feel like Robinhood approves of his clients. It certainly didn’t sound like “more access, not less”.
That’s the point. Trust is built on your brand – the trust you deserve if you keep your promises over time. It takes a long time to build a brand, but not a long time to destroy it. In the case of Robinhood, it took less than a day.