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Why ‘Robinhooders’ and Other Small ‘Traders,’ Unfortunately, Are Destined to Lose Their ‘Investment'


Can You Actually Make Money On Robinhood: Why ‘Robinhooders’ and Other Small ‘Traders,’ Unfortunately, Are Destined to Lose Their ‘Investment.’ Can They Do Something Now to Prevent That?



  1. Small traders are very likely to lose money trading.

  2. Small traders cannot match the scale and resources required to achieve profitability.

  3. Strategy for retail investors to make money in the long run is defined.


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The stats are out there. More than 90% of ‘retail traders’ lose their accounts. Yet, of course, when most retail investors set up their accounts, manipulated by the overwhelming and unscrupulous advertisement of unethical brokers, they believe that they will be the 1%.

They might not have any solid training or education in economics or finance, but watching their favorite YouTube stocks ‘Guru,’ who most likely also has no significant finance training, can be manipulated to believe that they are going to make money trading stocks.

Others might believe they are ‘smart enough to manage trading; after all, they might have worked in a company at a management position. This all is explained by the ”‘Dunning-Kruger effect,’ a type of cognitive bias in which people believe that they are more intelligent and capable than they actually are.

Basically, people do not possess the skills needed to recognize their own incompetence. Unfortunate indeed, when they can spend that money that they, very likely will lose, on essentials that can benefit them immediately.

But why can’t retail investors be successful in ‘trading?’

The price of a security such as a stock or bond is governed by a plethora of factors. Yes, there are simple models that a few google searches would bring up, such as the dividend discount model, the p/e comparison model, the cash flow discount model, etcetera.

While they may seem simple, their simplicity is a deception. It is very likely, that those without significant training, and by training we don’t mean an online course or reading a few books here and there, are highly likely to lose all the money they ‘invest.’

This fact, of course, is not highlighted significantly by most online brokers. They may act all civil and professional, yet, whenever they see you paying commissions on trades, etcetera, their inner Jordan Belfort, no doubt, does sparkle.

Let’s get to the brass tacks now: you, an individual, or even a small band of friends just cannot acquire the fundamental requirements to thoroughly analyze a few elements that govern a company’s earnings, for example.

Even if you spend a significant amount of time learning the fundamentals, a basic terminal that you would need to implement your training, like the Bloomberg terminal, costs more than $20 thousand. You need a plethora of data from reliable resources to construct a pricing model or even do a primary value at risk analysis (VaR) for your account. No, you can’t do so by just having your Robinhood charts and your free online data.

At the very least, if you go with a third-grade terminal service, you will still need at least $12 thousand p.a. to pay their subscription fee. Now ask yourself, can you logically pay at least $12 thousand from your Robinhood account, just to keep your analysis models updated, that too assuming that you have spent a significant amount of time learning the fundamentals.

A bachelor’s degree in business administration or related fields like leadership does not mean you have a fundamental understanding. A fundamental understanding here means a FRM, or a CIMA, CAIA, or CFA Charter. Yes, you can self-study, but there is a real problem with that; with self-study, you can never be sure that you have correctly learned the fundamental principles . . . why? Because you have never been tested on your understanding.

When you try to day-trade, you are thinking of going against funds with hundreds of analysts and the highest grade CIMA or CFA Chartered professionals, with all the data and analysis capabilities in the world, so to say. They have advance algorithms making moves in a fraction of a second and analysis divisions that you can never match the capabilities of.

Would you go fight a “Sasquatch” with a water gun? Of course not, right? Because you have the common sense to recognize that your water gun is an incompetent instrument when it comes to tackling a monster.

However, with your capital, you are willing to make that mistake, again, due to the Dunning-Kruger effect.

So, there is no point in trading? But I want to make some money in the Stock Market!

It is improbable that you will make any long-term profits trading stocks, as elaborated above. However, that doesn’t mean you can’t make any money from the financial markets. You can. Nonetheless, with a very different approach. . . it is called ‘investing,’ and it is very different from trading. With investing, you are not betting against anyone. You are gradually building a portfolio for long-term profits.

How’s investing different from trading?

Investing is the process of you building a portfolio of financial and non-financial assets that, in the long run, should yield a stable and consistent income for you.

So how to start investing?

At the very least, try saving 15% of your income and consistently invest it in a diversified portfolio. Not the most ‘hip and happening companies,’ but in diversified indices, bonds, and real assets, that reduce your risk significantly and increase the possibility of upside; for example, the Wilshire 5000, S&P 500, government bonds, investment-grade corporate bonds, gold, and real estate.

While there is some level of complexity in understanding portfolio management, to boil it all down, very simply, if you consistently invest a proportional amount of your saving, which should be no more than 25% for one specific area, such as a market index, bonds, gold, and real assets such as property, you should, in the long run, be in the green.

If you consistently invest 15%-35% of your income for over 10 years in a diversified portfolio, in the long-run, you are highly likely to generate a significant amount of income from your portfolio.

So, in conclusion, you as a small trader are absolutely unlikely to make money trading stocks; however, you, as a small saver and investor, are highly likely to make significant profits by investing in a diversified portfolio that isn’t allocated more than 25% to a specific area, as explained.

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