KDKA Investigates: Financial Advisors Explain Dangers Of Treating Buying Stocks Like Sports Gambling
PITTSBURGH (KDKA) -- There is new information about the young investors fueling what has been billed as a David against Goliath trade war
The investors are making money as the stocks continue to climb, but some see danger ahead for them and the market.
University of Pittsburgh grad student Andrew Kocay is one of a new generation of so-called Robinhood investors, whose ranks have now swelled to 13 million, mostly millennials or even younger Gen Zers who are suddenly buying and selling stock on the app.
"When you download the app, it asks for basic information, a small deposit and it makes it real easy to invest in stuff," said Kocay.
Ease to some but danger in the eyes of others. In the past six months, these young investors have been a major driver in the stock market's dizzying rise. Robinhood investors have helped bid up stocks like Tesla and Bitcoin cryptocurrency more than 400 percent. And just this week, the price of GameStop quadrupled in just three days - taking major hedge funds who shorted the stock to the cleaners and causing general alarm on Wall Street.
"It's combining the elements these young people are accustomed to," said financial advisor Rick Applegate. "The handheld phone, the gamification, all the graphics, it makes it interesting and intriguing. That may be good in some respects, but the end result is very dangerous."
Advisors say despite the warnings, the young investors are pressing on and following the mantra of the man who some call their pied piper. David Portnoy is the founder of Barstool Sports and credits himself with starting the movement. When sports shut down last April and he could no longer bet on games, Portnoy very publicly began day trading.
"Join the revolution. Start buying, don't sell. COVID this, COVID that. No, stocks only go up," he said.
"So people think the market just goes up and up and up, and there is no risk. There is risk," said Applegate.
RELATED STORY: Young, Online Traders And Investors Put The Shock Into Wall Street With GameStop Stock Price
Following Portnoy's lead during COVID, young investors like Kocay simply jumped from sports gaming sites onto Robinhood, and Applegate fears their stock picking is just another form of gambling.
"Where they would make a $10 bet on a game and check the next day to see if they won money, they're doing that now with stock. That is not investing. That is gambling," Applegate said.
In a statement to KDKA, Robinhood says it's democratized investing for a new generation.
"We designed Robinhood to be mobile-first and intuitive, with the goal of making investing feel more familiar and less daunting for an entire generation of people previously cut out of the financial system," Robinhood said.
But in addition to so-called "pump-and-dump" schemes like GameStop, these young people venturing into the more exotic forms of investing like options trading.
"They're going to get caught in a situation that is going to cost them big time," Applegate said.
But Robinhood says it's empowering young investors to build wealth — once the province of the rich.
"Our focus has always been on breaking down systemic barriers to investing to help more people take control of their finances," Robinhood said.
Kocay says he is a small-time player and has turned a few hundred bucks into about $1,500 for now. He's heard the warning but believes he's got everything in check.
"There's always ups and downs but you just got to survive through it and eventually it will pay off for you," he said.
But now these young investors find themselves at odds with federal regulators and Robinhood, which earlier this week limited their ability to buy GameStop, but those KDKA's Andy Sheehan spoke with say they're in the market for keeps.
