Robinhood – the best and worst IPO in history

HOSTS Adam & Thomas|10 August, 2021

Meet your hosts

  • Adam

    Adam is the funniest and most successful comedian in his family. He broke onto the comedy scene as a RAW comedy national finalist before selling out solo shows at two Adelaide Fringe festivals. He’s performed stand-up to crowds all over Australia as well as enjoying stints on radio with SAFM and most recently as a host of the Ice Bath on Triple M. Father of two and owner of pets, he may finally be an adult… almost.
  • Thomas

    Thomas, the economist, is the brains of the outfit. He studied economics and game-theory at the University of Queensland and cut his teeth as an economist at the Reserve Bank of Australia. He now runs his own economics consultancy, with a particular focus on the property market. He lives with his wife and two kids in the hills outside Byron Bay.

Hey Adam, did you do your Census? What do economists make of it? We wrap up the sexiest and/or craziest IPO in history, we look at whether the government should pay people to get vaxxed, and we look at how New Zealand is trying to tame their housing market.

Keep up to date with memes, charts, and general hilarity of the moment on the Comedian V Economist instagram

If you’ve got a question for Thomas… or Adam… then go ahead and send them to cve@equitymates.com

Any views expressed by the podcast host or any guest are their own and do not represent the views of Equity Mates Media or any other employer or associated organisation.

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For more information head to our Disclaimer Page, where you can find resources to search for a registered financial professional near you.

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Adam: [00:01:33] Hello and welcome to comedian versus economist, we demystify the world of money and help you get a handle on the bigger picture. My name is Adam and we're joined, as always, by my little older brother and real life economist, Thomas. [00:01:45][12.1]

Thomas: [00:01:46] Yeah, Gday Adam, How are you? [00:01:46][0.3]

Adam: [00:01:47] I'm very well, thank you. More to the point, how are you? First day of lockdown, I believe. Yeah. [00:01:52][5.0]

Thomas: [00:01:53] Yeah. Byron Bay Area has gone into lockdown. Yeah, I know it had to happen. I mean, it's kind of surprising it hasn't happened already, given we're a tourist mecca and there's people coming from all over the place. Yeah, but some numpty come up from Sydney. [00:02:05][12.4]

Thomas: [00:02:06] Covid with him [00:02:07][0.5]

Thomas: [00:02:09] four LGA's have gone into lockdown because he travelled all over the place like 200000 people. [00:02:14][4.7]

Adam: [00:02:14] What's the holiday destination? You're not going to go up there and just sit around and and isolate the point he was getting away. [00:02:24][10.0]

Adam: [00:02:25] Now that is tough. Shell again, we do certainly do it every week, but we hope you're all doing okay out there. It is tough when you're in lockdown. Some of us being in lockdown a lot longer than others around the country. But it seems to be affecting everyone in one way or another. So hang in there. Stay strong. How long you got? Seven days to seven days. [00:02:45][19.2]

Thomas: [00:02:45] Yeah, that's what they're saying. Yeah. First two hours have been pretty tough so far. [00:02:48][3.4]

Adam: [00:02:50] They say that's the worst. The good news is they say the first two hours [00:02:53][2.9]

Thomas: [00:02:54] Dollars the worst in the world. [00:02:55][1.6]

Adam: [00:02:57] Yeah, I wouldn't I wouldn't complain to anyone living in Sydney at the moment about your first two hours. Just quietly I'd keep. That is fair enough. [00:03:05][8.2]

Thomas: [00:03:05] That's it. Now will be. It will be all right. [00:03:07][1.8]

Adam: [00:03:08] All right. We've got a big show coming up today. Thomas, we are going to be asking you, is Robin Hood stealing from the rich and giving to the poor or have the tables turned? Should we pay people to get the Covid Jab? The New Zealand government is trying to stomp on the Kiwi property market. Could the same thing happen here? But first, Thomas, I've got some good news so we could all do with a bit of good news. I've found a way to save you two hundred and twenty two dollars per day. Oh, nice. Do the census if you're listening to this. It's Wednesday at the very least. If you're hearing this episode and you haven't done the census yet, you can be fined up to two hundred and twenty two dollars a day every day. So, yeah, get out there. And it would kind of get out there and do it. [00:03:52][44.2]

Thomas: [00:03:52] Stay home and do it. [00:03:53][0.6]

Adam: [00:03:54] Thomas, what's the census all about. What what are we doing? [00:03:56][2.1]

Thomas: [00:03:57] Oh, it's kind of like a stocktake of the shop that is the nation of Australia. Get everyone together and count them. Yes. How is sort of how we sort of get a picture of what's happening in the country in bird's eye view of the demographic profile of the of the nation? Erm, and it's important because it's like from an economic perspective, it's sort of our reference point for all of the survey statistics that we have said, like remember, look at the ABS has a lot of survey data, like the Labour Force Survey where they go out and they serve a survey sample of people and from that sample extrapolate out to the entire population. But a lot of that is reference from the ABS because every five years we get an account of the actual population. And so that gives us a way to sort of anchor those samples in a bit of reality. [00:04:44][47.4]

Adam: [00:04:45] Yeah, OK. But given that we're in the height of Covid, so it would saying, isn't this census going to be pretty different? Like if we're looking for trends over time, we're going to tank. You know, a lot of people are not working at the moment. A lot of people's current state, as it is today, is going to be heavily affected by Covid. [00:05:03][18.5]

Thomas: [00:05:04] Yeah, that's that's probably right. I mean, I don't know if you haven't done your census yet. I'm guessing that we recorded Monday night. I did mine this afternoon. [00:05:11][7.2]

Adam: [00:05:12] I'm more of a last minute kind of guy. [00:05:14][1.4]

Thomas: [00:05:14] Yeah, I'm more of a I'm more of a at least one, two hundred and twenty two dollar fine. And then I'll get you that note at the start I was really just for [00:05:24][10.1]

Thomas: [00:05:24] use when you're listening back on Wednesday. [00:05:25][1.3]

Thomas: [00:05:26] Yes. Hey future Adam. Remember Do said today [00:05:30][4.3]

Thomas: [00:05:32] that there's not there's not too much in there that's going to be Covid affected. And even if it is, it's kind of alright because there will be a match up the census survey date with, say, the labour force survey for for August and match them up together. So, yeah, and I think it's really only jobs, sort of the only one that that's probably going to be Covid affected. The rest is sort of about where do you live, what languages do you speak, what's your religion? [00:05:57][24.7]

Adam: [00:05:58] I thought I took the religion questions out of the survey. [00:05:59][1.8]

Thomas: [00:06:01] No, no, no. It's still they're still [00:06:02][1.9]

Adam: [00:06:03] the rates are so small. I think as I read some articles, I saw some headlines today about some religious questions. People were angry about certain religious questions, maybe not being asked. So, um, uh, [00:06:16][12.8]

Thomas: [00:06:17] I think I do remember that section being a lot shorter. Like, it's really just like do you identify as with a particular religion? [00:06:23][6.0]

Adam: [00:06:24] I heard you're not allowed to be a Jedi anymore. That's considered a Jobi [00:06:26][2.9]

Thomas: [00:06:27] agenda with [00:06:27][0.3]

Adam: [00:06:27] you know, I think it's considered a joke. Now you can refine even more. [00:06:30][2.9]

Thomas: [00:06:34] I probably spent too much [00:06:35][0.9]

Adam: [00:06:35] time looking into what happens if you do [00:06:36][1.5]

Thomas: [00:06:36] stupid things with the survey, [00:06:38][1.0]

Adam: [00:06:39] but I think if if you're found to be joking or lying on the survey, it's like 20 to 100 bucks. I don't know what their obsession is. The ABS with the number, with the number two, but it's two hundred and twenty two dollars if it's if you haven't done it or twenty two hundred dollars [00:06:56][16.1]

Thomas: [00:06:56] if it's federal, it's federal penalty units. There's a thing called federal pen penalty units which is. Yeah. And so like not doing the census is one federal penalty unit to lying on the census is probably ten federal penalty units. [00:07:09][12.4]

Adam: [00:07:10] Did Richie Bano invent the penalty? Does it round it down or up or something? I don't know. [00:07:20][10.5]

Thomas: [00:07:21] Maybe there's GST. It's you know, it's [00:07:24][3.0]

Adam: [00:07:25] interesting that I did read the the closest thing we've got to looking at the Covid census this year is in nineteen twenty one. We did a census in nineteen twenty one, which was in the wake of the Spanish flu, but that was very different. That was they they said they counted five thousand two hundred and twenty one waggons or Kamps. [00:07:44][19.4]

Thomas: [00:07:45] Believe it or not, I'm not making this up. 2220 three buildings were made of barch [00:07:52][7.1]

Adam: [00:07:53] while households were divided between those headed by men and those by women. So very different census, but that's the closest thing we can we can draw to a a pandemic affected census. [00:08:03][9.8]

Thomas: [00:08:03] So, wow, when there is some good data comes out of the census and it does give us a good snapshot and it's useful for statisticians and for guiding public policy. I just great. The great story is that in 1951, there's an Aussie statistician called Oliver Lancaster and he was looking at incidence of death mutism. He went back to the 1911, 21 and 33 censuses and realised that the people born in the 1898 in 1899, they had high incidence of death mutism. But that was when there was a known outbreak of rubella. Right. And so he made a statistical link between rubella and congenital problems with unborn children. And that was the first time that that was established in Iraq. [00:08:49][45.8]

Adam: [00:08:50] Hmm. [00:08:50][0.0]

Thomas: [00:08:51] And yeah. Yeah. And then from there, we got rubella vaccines. Right. [00:08:55][3.9]

Thomas: [00:08:56] Well, there you go. And who doesn't love a vaccine, [00:08:58][2.0]

Adam: [00:09:02] which is I didn't intend it. But the perfect Segway into our next topic, which is Thomas, a lot of talk this way. Anthony Albanese has been out there with some ideas on how we can get people to get the jab. But I want to ask you, first of all, should we be paying people to get the job? [00:09:19][16.4]

Thomas: [00:09:20] Yeah, I mean I mean, this was a funny one. So it just feels like the political sphere is in complete chaos around the vaccine rollout and how to get it going. And then Anthony Albanese is just logged in from the sideline. This idea of giving everyone three hundred bucks [00:09:36][16.4]

Thomas: [00:09:37] as someone as someone [00:09:38][1.1]

Adam: [00:09:38] who's had both shots already, I say 300 Dollars is not enough Dollars. We're printing money. We're printing money. Yeah. This is the world we're living in. 300 bucks is not enough. [00:09:50][11.9]

Thomas: [00:09:51] Yeah, it's true. I mean, it would cost. Yeah, it would cost five billion I think to do that one we [00:09:57][6.0]

Adam: [00:09:57] print two episodes ago we talked about the Australian government has gone from printing five billion to four billion. [00:10:03][6.0]

Thomas: [00:10:05] That's a week's worth. It's a week's worth of work for Gomo and incurred OK. Oh yeah, yeah, yeah. [00:10:14][9.1]

Thomas: [00:10:15] I mean, this is interesting. It's interesting. Like, it's not it's not off the table that there's a group inside the union of economists. This is something I learnt this week. I didn't know this was a thing. But there's a union of economists within the Department of Prime Minister and Cabinet and their behavioural economists headed up by a guy called Simon Gordon. And it's called the Behavioural Economics Team of the Australian Government. It's an acronym. It's Beta Beta. [00:10:38][23.3]

Adam: [00:10:39] Not to be confused with the more popular validating human squad that they also run or VHS, as it were. [00:10:45][5.6]

Thomas: [00:10:50] Yeah, sort of a bunch of behavioural economists and they're looking at this. And so behavioural economics is sort of a spin off of game theory. So game theory sort of started in the 60s. And then behavioural economics is like how you use the economics of shifting behaviour. And they sat and looked at that. But like the data on paying people to do stuff they don't want to do is actually kind of patchy, right? [00:11:11][21.7]

Thomas: [00:11:12] Yeah, but it does me I am on board just in case everyone's wondering. [00:11:19][6.8]

Adam: [00:11:19] Yeah, yeah. I mean, I've done worse. I've done worse for less. But really like. Yeah. Like I like the time I weighed I, I lied about my weight loss and got dragged into a nonpaid photo shoot for. Four light Navy [00:11:33][13.3]

Thomas: [00:11:34] with a lot of tequila. I love Navy four times and all I was trying to do was win the PlayStation three, arguably more humiliating. [00:11:50][15.3]

Adam: [00:11:51] Yeah, and worse for me than getting a vaccination. [00:11:53][2.2]

Thomas: [00:11:54] So I didn't ask you for, like, a before photo. [00:11:56][2.2]

Adam: [00:11:57] No, I didn't. I just had to. You could win a PlayStation three and you had to send in a little story about why you liked the food or like Neysa or whatever. So I sent in a little story [00:12:10][12.5]

Thomas: [00:12:11] I may have embellished here and there about like my my losses and my my my my weight loss journey, as [00:12:22][10.3]

Adam: [00:12:22] it were. But I didn't win a PlayStation three, I think. Yeah, but [00:12:28][5.7]

Thomas: [00:12:28] why were you eating like an easy? [00:12:29][1.3]

Adam: [00:12:30] Because I'm lazy now. [00:12:32][1.4]

Thomas: [00:12:32] I was schierholz living it was that or cooking. Oh yeah. Yeah. This is the kind of stuff that builds up against you got their work cut out for. Oh, no, know, [00:12:51][18.7]

Thomas: [00:12:52] they do look at pain like the classic one is blood donations, and whether you you pay people to to donate blood and what they find is that you kind of end up swapping out people who do it for money and people who are doing it for four because it felt good and they felt like it was a good thing to do, because once you once you sort of you attach money to it, it kind of sullies it. It becomes a sort of a transaction. And so you don't get that feel good. I'm helping humanity kind of vibe from it. Right. And so pazzo paying people to donate blood has has has had limited success in the trials that they've done on it. OK. Yes. And I think it's I think it's probably safe for the vaccinations as well. So it kind of frames it in a bad way. Like if you got if you're getting paid to do it, it sort of implies that it's a bad thing and that you you'd only do it if you were getting paid. There's a lot of people getting the vaccine already and it sort of undermines that sort of like collective community spirit. I'm doing this because we're all in this together and we've got to get to, you know, make some sacrifices, that kind of spirit. It undermines that by paying people to do it. And the other thing that is, is 300 bucks is, you know, this there's some people that's going to be very motivating. But for some people, it's not going to be motivating at all. It's just like 300 bucks. And if you if you're really worried about vaccines and possible side effects, you know, 300 bucks isn't really isn't going to isn't going to get you over the line. [00:14:14][82.2]

Adam: [00:14:16] So what else can we do? What's what are the other options on the table? [00:14:18][2.1]

Thomas: [00:14:18] Well, the sort of response to that was that rather than rather than pay people 20 bucks, they should have a lottery. So if you get vaccinated, you go in the draw to win a PlayStation three. [00:14:27][8.6]

Thomas: [00:14:29] I mean, you play well, actually, [00:14:31][2.4]

Adam: [00:14:31] PlayStation five is rare as hen's teeth at the moment. Can't get them right. Yeah. [00:14:37][5.2]

Thomas: [00:14:37] Microchip shortages, semiconductor shortage mightly. [00:14:40][2.4]

Adam: [00:14:40] I'm not sure where you can't get it anywhere [00:14:41][1.2]

Thomas: [00:14:42] at all in years. Gone, gone into the vaccines, [00:14:43][1.4]

Thomas: [00:14:45] semiconductors or microchips. [00:14:46][1.5]

Adam: [00:14:47] Okay, so a lottery with a big cash prise or something. Yeah. [00:14:50][2.8]

Thomas: [00:14:51] Yeah. If you're going to reward people to do that. And typically the idea there is it just ends up being cheaper because people suck at maths and that they're really bad at estimating the the probability people people are just generally bad with probability. We don't. There's a really awesome book called Thinking Fast and Slow by Daniel Kahneman, who won the one The Nobel Prise in Economics a few years ago. Probably my all time favourite economics book. [00:15:15][24.0]

Adam: [00:15:15] Yeah, I'll [00:15:15][0.4]

Thomas: [00:15:16] probably read it. Yeah, I've got a 70 [00:15:21][5.6]

Thomas: [00:15:22] percent chance for you. Yeah, but he's just saying, look, we just the human mind is just not wired to deal with probability. It's just it's, it's, it's a sort of a very modern concept. We didn't involve with us through time. We just didn't you didn't have to deal with probability as a as a primitive human. So yeah. So it's a bit so you can use that to your advantage if you're an economist by running a lottery where people overestimate the chances that they're going to win something and they get excited thinking PlayStation three, I'm going to falsify my weight loss report and they'll do it. So you can sort of do it for much less than you would say, paying everyone. Three hundred dollars. You could have a million dollar cash prise. And it sounds amazing. And people get excited because it's a million dollars, but you save yourself, you know, [00:16:09][47.4]

Adam: [00:16:10] four point ninety [00:16:11][0.5]

Thomas: [00:16:11] nine dollars. Yeah. [00:16:12][0.9]

Adam: [00:16:14] Yeah, right. Yeah, yeah. And I guess they need to take away that transactional nature as well. So people are like, well, I'm doing it. I might win something if I, if I, if I win. [00:16:23][9.4]

Thomas: [00:16:24] Yeah. It's a bit of a more of a sweetener come by. Yeah. But again it's still not particularly it doesn't move the dial a lot. So there's a study I saw the University of Queensland statistician statistician called Adrian Barnett did the experiment in the US on sixteen 128 unvaccinated people to see what was the best way to get them, convince them to get vaccinated. And they found that twenty two per cent were motivated by an offer of cash, 14 per cent by a lottery, and then 16 per cent by information about vaccines benefits. So you put those two cash ones together, get thirty six per cent. So so money is only going to move, you know, maybe a third of the population. And if we're talking about, you know, needing 80 per cent or 70, 80 per cent, the number seems to change every week, then that's that's not going to get us over the line, right? Yeah. Yeah. The other interesting thing out of the game theory is or behavioural economics is that the people are regrette avoiders. So people don't like regret's and they don't like they don't like the idea of things that are going to give them regret. Hmm. So you avoid sort of making decisions that you think are going to, you know, might have a bad result because then you're going to regret it later. And the interesting thing about getting vaccinated versus getting the I often see the talk in the papers that the chances of getting covid and getting damaged, you know, serious health consequences from Covid are much greater. And the chances of getting a side effects from the vaccine, like almost the side effects, is almost negligible compared to the dangers of getting covid that says that you keep hearing. But it doesn't really work because the agency is very different in that story. So if someone gets covid, they don't they don't blame themselves. They say that's just fate. It was just luck. There was a, you know. Right. Disease going around. I just happened to get it. I was unlucky. You know, it's just luck. It's just fate. But if they make the choice to get the vaccine and then get the side effects, then they then have regret about the choice that they [00:18:22][118.2]

Adam: [00:18:23] made me try to make sense. So, yeah, so if I don't if I don't choose to take to get the vaccine, I can't regret choosing it. Whereas if I get Covid, I can't regret getting Covid because it was just bad luck. [00:18:34][11.2]

Thomas: [00:18:34] Just luck. Yeah. Interesting. [00:18:35][1.0]

Adam: [00:18:36] I did, I did read some American ideas we'd like to hear. [00:18:40][3.7]

Thomas: [00:18:40] Oh yeah. Yeah. They're famous for their ideas. [00:18:42][2.3]

Adam: [00:18:44] So Alabama, if you live in Alabama, you get if you get the vaccine, you get to take two laps around the [00:18:53][8.8]

Thomas: [00:18:53] Talladega Superspeedway racetrack in your own car, which is amazing because arguably your chances of hurting yourself to the Talladega Superspeedway racetrack in your own car are significantly greater than any ill effects from Covid for the vaccination. [00:19:15][22.0]

Adam: [00:19:17] Chicago, Chicago decided to do a music series which is exclusively open to vaccinated residents. So you can only get in there if you're if you're vaccinated. New Jersey had the much talked about shot and beer campaign, which offers people a free beer if they've had the vaccine. That was until a local man, Chuck Haley, got vaccinated 15 times and back. [00:19:39][21.7]

Thomas: [00:19:43] It's not true that you could say that. It's not a stretch, is it? I have, [00:19:52][9.0]

Adam: [00:19:54] but I had an idea. Idea? I think this is actually a good idea. Mm hmm. So, you know how we had we had the entertainment book when we were sort of growing up or whatever, and families have had that entertainment book for ages. I used to have that. I think it's an app now. It's not a book anymore. It's an app and it's got vouchers for local businesses. So like maybe when you get your Covid vaccinations, you get an entertainment book used to have to pay like 100 bucks for it. So when you got your Covid vaccination, you get a government sponsored entertainment book that gives you discounts to local businesses. So it stimulates the local business economy, gives you cheaper deals on Nitza, assuming you can get out and do it. And we'll look forward to when we can say, yeah, and it's only if you only get one once you get vaccinated, so you get rewarded with discounts that stimulates the economy. [00:20:47][52.4]

Thomas: [00:20:48] Yeah, well yeah, I like it. Yeah. And that's good. Doesn't feel too transactional. Yeah. Yeah. So what's a local local arts and entertainment industries. So we know. Thank you. Yeah. Got my vote. [00:21:01][13.0]

Thomas: [00:21:01] All right. [00:21:02][0.1]

Adam: [00:21:03] Well I expect calls from the [00:21:05][2.7]

Thomas: [00:21:06] from Bita any day now. S.V. at Equity Mates Starcom if you want to get me worried about or you can [00:21:15][8.3]

Adam: [00:21:15] check out the website Equity Mates dot com forward slash CVA or why not send us a message or go and check out our Facebook and Instagram pages. Welcome back here on comedian versus economist, and if you like this show, don't forget to check out all the great podcast from Equity Mates Media, Get Started Investing feed, Equity Mates Investing podcast. You're in good company. There's lots to get is around, so get on over and check those out. But Thomas, couple of quick ones to finish with Robin Hood. We're not talking about the sheriff of Nottingham's Arch-enemy. We're talking about the share trading app. And they had possibly one of the worst IPO's in history and that turned it around to have one of the best. What's happening with Robin Hood, their share prices all over the place? [00:23:06][111.0]

Thomas: [00:23:07] Yeah, and this is just such an amazing story. So, Robin, Robin Hood, you know, huge, huge story through 2020, empowering retail investors to get into the market for the first time. That created a whole bunch of meme stocks. So we had Hertz car rentals. We had AMC had a bunch of others just like these sort of companies on their last legs. GameStop, GameStop, that's around. That was the big one getting bid up into the stratosphere. And that was a lot of that was being powered by a Robin Hood trader. So sort of like it's targeted at millennials. The median age of the user ship is 31. So it's still very young. Yeah. And then they went they went public. So they took their company after sort of growing their user base phenomenally through 2020. They've sort of gone public and raised a bunch of capital with through an IPO. And so, yeah, they launched that I think was a Tuesday last week, Wednesday, Wednesday, last week, I think. And then immediately in the first it ended the first day down eight point four per cent from its initial price, which made it the worst performing IPO of its size in history, really in history. But then it became the market. Yeah, but wait, there's more. Then it became its own meme stock. So really got it became the most mentioned stock on Wall Street bets, which is the Reddit community, which was behind GameStop and much of others. So Robinhood itself became the most mentioned stock and became a main stock and then got beat up. So at some point on Thursday, it was up 100 per cent on its starting price. Well, and then fell down and then closed the week up about 50 per cent, which which makes it one of the best in history, I think, as well. So so it's just embassies while so it's become its own meme stock. It's sort of the very Soulive sort of phenomenon that it was had catalysed it into its success. It just was the living example of through its IPO, its first week of trading. [00:25:04][117.5]

Adam: [00:25:05] Yeah, I'm just looking at the chart here, and it's the kind of chart you would expect to see if you were looking at Ethereum or, you know, Dogecoin or [00:25:13][8.1]

Thomas: [00:25:13] something like this. Yes, this is an open [00:25:17][3.7]

Adam: [00:25:17] Nasdaq traded stock and it's just flapping around all over the place. So the the big the big attraction to Robinhood is that they offer fee free trading. So how do they make their money? [00:25:31][13.5]

Thomas: [00:25:32] Yes, this is one of the things that they in many ways, they're they're they're a stock broker kind of company. But you can kind of think about Robin Hood like a big tech company. And sort of the saying in tech is that if you're not paying for it, you're the product. And so, like with Facebook, for example, you don't pay to be a user. You're a user, and you get access to all the benefits of being on Facebook and whatever, but you don't pay for it, but you become the product. And then people, advertisers, in Facebook's case, pay for access to you. Yeah, and that's that's sort of that's sort of the big tech business model. [00:26:07][35.4]

Adam: [00:26:08] So as Robin Hood full of ads, [00:26:09][1.2]

Thomas: [00:26:11] you [00:26:11][0.0]

Thomas: [00:26:13] know, what Robin Hood does is it sells its order flow to. Yes. So to the highest bidder, basically. So so people put in their orders on the app and then they need to get executed by a market maker. So that's not what Robin Hood, the Robin Hood of Breakwaters, matches orders to to the market makers. Right. But it doesn't just, you know, give them whoever's got the best price or whatever it is, it sells it. So whoever whoever is willing to pay the most for the order flow gets the orders, right? [00:26:41][28.2]

Adam: [00:26:42] Yeah. And so you're presumably not getting the best price out of that deal. And if you're buying your your stock through Robin Hood, you're maybe not getting the best price, but it's maybe not. [00:26:54][12.4]

Thomas: [00:26:55] Maybe not. The incentives aren't aren't completely aligned up. I mean, pay pay for order, flow off as an acronym for. Well right now it's been around for a while. It was actually pioneered by Bernie Madoff, who was one of the biggest was behind one of the biggest Ponzi schemes in history. Yeah, yeah. And the SEC looked into it in America for a while and was thinking about banning it. And I think it's illegal in the UK just because the incentives are aligned properly. It's not it's not like a complete evil, but it's the beer summit on the edge. [00:27:36][41.1]

Adam: [00:27:37] So does this business model they've got. Does that make Robin Hood a risky company all year? [00:27:42][5.2]

Thomas: [00:27:42] I'm not sure that they do seem to be playing fast and loose. I mean, they're growing phenomenally and they're sort of they're carving out a niche that hasn't existed before in the finance space. So they have copped quite a few fines along the way. And there was an announcement on the eve of the IPO that a bunch of their executives were being investigated for breaching stockbroking rules or something. Never a good look. Not a good look. Normally, that would kill an IPO. But like in big tech, it's sort of like worlds, the sort of that's that's how it rolls. The thing I love about Robin Hood is Daniel Gallagher is their chief legal officer. He's getting paid. He works six months in 2020 and got paid thirty dollars million. [00:28:23][40.7]

Thomas: [00:28:24] Wow. [00:28:24][0.0]

Thomas: [00:28:25] The CEO of Disney got paid 15. So their chief legal officer got 30 million dollars. [00:28:33][7.3]

Thomas: [00:28:33] Yeah, well, [00:28:34][0.4]

Thomas: [00:28:35] and he was he used to be a SEC commissioner, so they've kind of co-opted him. Hired. [00:28:40][5.5]

Adam: [00:28:41] Well, yeah, [00:28:41][0.4]

Thomas: [00:28:41] no hard work and hard work. So they got good hater. [00:28:44][2.6]

Thomas: [00:28:45] Yeah. Right. [00:28:47][1.9]

Thomas: [00:28:48] I think I think Robin Hood got a future. I think. I think it has carved out a good niche for itself. I think you look at its use it use a median age of 31 and anything like that. They've got a long lifetime customer value out of that and they use it because they're going to stick around for a long time. And the other thing that they've done, which is kind of on the verge of evil genius, is that they've game fired trading. So they've sort of made it it you know, that sort of the app sort of thing. It's it's addictive. It kind of gets sticky. You get you get these dopamine hits in early versions of the app. Every time you made a trade, you got this sort of celebratory shower of confetti on the screen. So even even if you just bought something and then sold it for a 20 per cent haircut, you still got this shower of confetti. [00:29:33][45.4]

Thomas: [00:29:34] Great job. You're right. A 20 percent loss. Yeah, the loss badge. [00:29:39][4.8]

Thomas: [00:29:42] And and because because of this, because they're selling order flow, their incentive is to get you making as many orders as possible. So they want to get you trading as much as possible. And so that's sort of like it gets addictive and people are checking it every day in and day trading. But we know that people who trade more often get less returns than those who have a who trade less often, who have a steady sort of [00:30:03][21.1]

Adam: [00:30:03] might have a strategy, have a plan. [00:30:05][1.3]

Thomas: [00:30:05] You have a plan. So so I think I think Robin Hood has sort of pushed this niche of where sort of gambling meets trading. It is a niche and it's a profitable nation. I think they're going to do well out of it. But is it a great is a great thing for society that that niche exists and is that niche is now being serviced? I'm not so sure, but that's not to take anything away from the company, which, [00:30:32][26.8]

Adam: [00:30:33] you know, I did not the their biggest competitor is is the company I guess it's a company called Charles Schwab. Hmm. Like if that's the best I got to fight against Robin Hood then. Like, if I if I'm a hip young do looking for a cool trading platform, I'm picking Robin [00:30:53][20.7]

Thomas: [00:30:54] Hood over Charles Schwab. [00:30:55][1.0]

Adam: [00:30:56] I know I'm not even looking at features. There's no way I when Charles Rob [00:31:00][3.5]

Thomas: [00:31:01] Robin Hood every day of the week is. Yeah. We'll see if our plays out. [00:31:05][4.5]

Adam: [00:31:06] Hey, before we go, we just want to talk quickly about New Zealand mortgage limits. So the central Bank of New Zealand are BNZ is slowing the housing market. How are they doing it. [00:31:19][13.3]

Thomas: [00:31:19] Mhm. Yeah. So house prices in New Zealand are just going like crazy here. They're going 30 percent year on year in New Zealand at the moment. So just going the crazy amount and that's after they put in restrictions a couple of months ago to try and cool things down a bit. But yeah, so they've come back to that idea. So in so we have what we have in Australia is APRA, which is the Australian Prudential Regulatory Authority that got spun out of the RBA adding about like ten years ago or something. And APRA is responsible for managing the banks and managing the way the banks do things in New Zealand. It's that they haven't spun it out. So it's still with the Reserve Bank of New Zealand is sort of responsible for that. And they're bringing in these measures to sort of try and cool the housing market. And what these measures are called is macro prudential measures macro because it's sort of a big picture in the aggregate, prudential because they're a bunch of prudes. BNZ Yeah, this is a manager. So managing the market sort of as a sort of an aggregate level. So they're not well, what they don't [00:32:27][67.1]

Adam: [00:32:27] want to be talking tough, by the way, [00:32:28][1.3]

Thomas: [00:32:29] against New Zealand economists like this big. Big city across Australia always was spun out our prudential regulatory business, the whole we're going to hold the out department for that. Now we've got to of you guys here. [00:32:46][17.7]

Thomas: [00:32:49] Yeah, but it was the idea with macro prudential policies, you don't want to get involved. You don't want to get involved in the weeds. You don't you don't want to, like, restrict individuals from from doing what they want to do. You don't want to sort of tell tell the banks how to do their things. Exactly. Like you want to get into the detail of what they want to do. So what they have is sort of these macro these big top level kind of limits. So so the one that New Zealand just brought in is saying, like, they don't they don't want to see loans going out with less than a 20 per cent deposit. So like, yeah, more than 80 per cent are. They don't want that to be any more than 10 per cent of all new loans. Right. So 90 per cent of the light of the new loans going forward have to have a deposit of more than 20, 20 per cent or more. [00:33:38][48.5]

Adam: [00:33:39] Okay, so that's going to make it harder to get a home loan in New Zealand. [00:33:41][2.5]

Thomas: [00:33:42] Yes. Yeah, yeah, yeah. So it doesn't it doesn't tell the banks who to lend to or how much to lend to who. Yeah. But just says on your total mortgage book, we don't want to see this sort of going on. And so that's sort of and then the kind of restrictions that are that you're in place. So and the kind of things that. Yeah. So there's those loan to value restrictions, there's debt to income restrictions. So the amount of debt to the household income, the mortgage buffers, they can sort of measure. So you can when you when you're assessing someone's serviceability, there's the current mortgage rate that they're offering, but then you factor in a buffer. So you add like three per cent or something. And then, look, can they still afford that mortgage with that kind of buffer in place? Mm hmm. And the other one we had we had this in Australia. So APRA came out and did this in like around 2016. They had there was a real concern that interest only lending was getting out of control. And then it was it was pretty ridiculous. Like at some point, 40 per cent of all new loans were interest only. So not not principal and interest were just paying interest only. So APRA came in and said, OK, we want to get that down under 25 per cent or something like that. So and that's that did slow the market. And in Australia, house prices fell about five to 10 per cent across the country after that, after those restrictions. So they did. They did. They did work in Australia's case. [00:35:00][78.1]

Adam: [00:35:01] So are we likely to see the same thing happening here any time soon? [00:35:03][2.5]

Thomas: [00:35:04] It's possible. People are talking about it. People are talking about it. The thing is that they're not looking at targeting house prices. So this is another interesting that's happened with New Zealand is that the government has said to the RBA and said, we want you to think about house prices in your interest rate decisions and in the way you're doing things. So house prices didn't used to be, you know, used to be a sideshow. Governments now said, no, no, make this a central concern. We want house prices in the mix. That's not the case in Australia yet. So you don't have the RBA or APRA worried about house prices in particular, having any view about where house prices should be. Where they are concerned is if it creates financial instability. So if it's starting to look like a bubble and it might all come crashing down and people are getting in over their heads and too many people are getting in over their head. So it has the potential to bring down the banking system, then then that's where they start to worry. And that's what they're worried about with interest only lending is that it was so much of the market. And if people were borrowing, you know, borrowing interest only lending, that's because often because they had no intention of paying off the full loan or they couldn't afford the full to pay principal and interest, they could only afford interest only lending. So, yeah, there was a worry that if if things went sour, all those lenders who had pushed themselves right to borrowers or who had pushed themselves right to the edge would collectively go broke. And that would bring down the banking system. Yeah, right. Interesting. But right now, when that doesn't seem to be the case, so the interest only lending is pretty contained for the moment. Most to most of the boom in house prices seems to be driven by owner occupiers, which have a much lower risk profile than investors typically. So there's sort of like the key measures that sort of that suggest you're in a speculative bubble in Australia, aren't there, right now. So I don't I don't think the RBA is going to be particularly worried. Okay. Just yet. But but they are making too low. Is that the other day saying it's definitely a possibility it could come back? [00:37:01][117.0]

Adam: [00:37:02] So I say we quickly have interest rates going up in New Zealand. No, no, it's not a that's not a is that going to happen as a result of this? There are what [00:37:11][9.1]

Thomas: [00:37:11] macro prudential allows you to do is to call the housing market without increasing interest rates. Okay, so kind of the tricky thing about interest rates as you lower interest rates to stimulate the entire economy and all businesses who borrow and everything but it over stimulates the housing market. Right. And that's sort of what so that's sort of the problem to what? An interest rate that's good for the economy as a whole might be too hot for the housing market, right. [00:37:39][27.8]

Adam: [00:37:40] And so have some other controls. [00:37:41][1.0]

Thomas: [00:37:41] Yes, you bring in some other controls just that just affect the housing market so you can keep those super cheap interest rates, but take some of the heat out of the housing market. So that's what macro prudential tries to do, right? Yes. So if it does come in, it means interest rates stay lower for longer. Yep. That's a BNZ is making noises about raising rates in the next couple of months. [00:38:01][19.3]

Adam: [00:38:01] We'll tell them the pipe down time. [00:38:02][1.1]

Thomas: [00:38:03] I see that, too. We will have a lot of listeners [00:38:14][11.2]

Adam: [00:38:14] out there in New Zealand. We thank you very much for cheering level of your work over there. That brings us to the end of the show for this week, slightly longer and I think this week. So thanks for sticking with us. Appreciate you tuning in every every week. Don't forget, you can always send us an email CBB at Equity Mates dot com or on the website Equity Mates dot com forward slash S.V.. We did get a few emails this week. Apologise, we haven't had time to get to them today. We'll try and get to those next week. A few emails actually about superannuation, which if you haven't listened already, go and check out the couple of bonus episodes we did over the last few Saturdays, thanks to a sponsor, a super hero for enabling us to do those. So lots, lots happening here. Lots more to come. Thanks once again so much for tuning in. We really appreciate it. And we'll see you again next week. [00:38:14][0.0]

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