A little over a year ago, I set out on an experiment. App-based trading platforms, led by Robinhood, had exploded onto the scene. Investors, young ones in particular, poured into the app which in the early days of the pandemic saw accounts on its platform go from 7.2 million in March 2020 to 18 million, an increase of 151%, just a year later.
Originally, I thought I’d check out the app and track artificial trades on the side, something known in the industry as paper trading. But paper trading can be tedious and there was no good way of doing so while also using the Robinhood app in any meaningful way.
Instead, I decided to put my money (a very nominal amount) where my head was and give this thing a try.
Initial Investment
Running counter to everything I know and believe about markets, I searched the headlines du jour to help me decide how to make my initial investment. I narrowed things down to Bitcoin, Ethereum, an energy sector ETF and a gold ETF as stories about energy and gold just having to go up as energy use and inflation rose were very common in that moment.
On November 30, 2020, I invested $500 in a Robinhood account. With those funds, I purchased the following.
- $200 Bitcoin 0.01036729 BTC
- $200 Ethereum 0.329947 ETH
- $50 XLE 1.3488 shares
- $50 IAU 2.88882 shares
XLE is a SPDR ETF that invests in a diversified energy sector portfolio. IAU is an iShares ETF that simply tracks the price of gold. The quick story is that I sold them relatively quickly, on 12/27/20 and 5/5/2021, respectively, to chase meme-stocks and coins, which I’ll detail later. I made a little over $5 on the Energy ETF and lost a little less than $1 on gold. Not much to analyze there, but I’ll revisit this in closing.
Also worth noting, in October 2021, I made a subsequent investment of $250 into a Coinbase account. This was used solely to purchase Shiba Inu, which is what’s known as an Ethereum-based altcoin.
Crypto Rollercoaster
In an attempt to keep this blog under 2,000 words, I’ll spare you an attempt at describing the crypto phenomenon. There’s a LOT written about it out there, and we’ve blogged about it as well. I’ll simply provide links below where appropriate if anyone wants to dive deeper on definitions.
Bitcoin (BTC) – My $200 investment referenced above allowed me to own all of 0.01036729 Bitcoin at a then value of $19,291.44/coin. It has been a true rollercoaster ride since, peaking at more than $65,481/coin in November 2021.
As of this writing on the afternoon of 2/23/22, Bitcoin was trading at $37,625. While a gain of roughly 95%, it’s down nearly 43% from its peak.
Ethereum (ETH)– My $200 investment here allowed me to own 0.329947 ETH at $606.16/ETH. Similar to Bitcoin, it’s been a volatile ride. Around the same time as Bitcoin’s peak, Ethereum reached a price of a little more than $4,627/coin, making my $200 investment worth more than $1,500.
As of the afternoon of 2/23/22, ETH is trading for $2,630, still a gain of 333.75% from the initial investment, a similar drop of -43% from the peak.
Dogecoin (DOGE) – Known as an altcoin or meme-coin, I used proceeds from the ETF sales mentioned earlier to purchase 97 Dogecoin for $57.92 on May 5, 2021, meaning DOGE at the time was worth $0.5971. This was just a few days before Telsa & SpaceX CEO Elon Musk, the self-described “Dogefather,” hosted Saturday Night Live and somewhat jokingly admitted that DOGE was “a hustle” in a somewhat auto-biographical portrayal of a crypto-investor on the May 8, 2021 Weekend Update segment.
As of 2/23/22, DOGE is trading at $0.1295/coin. A loss since my purchase date of -78.3%
Shiba-Inu (SHIB) – As mentioned earlier, on October 15, 2021, I went further down the rabbit hole with both trading apps and memecoins, opening a Coinbase account to purchase $250 worth of Shiba Inu at $0.000025/SHIB amounting to a hair more than 9,867,330 SHIB.
Here, I made an exit rule before investing as I really just wanted to see what the hype was all about and test the Coinbase platform. By October 28, 2021, I reached that goal and sold $500 worth of the coin at $0.000063/coin leaving 1,978,592 shares worth around $124. I more than doubled my money and still had $124 left in the investment.
As of the afternoon of 2/23/22, Shiba Inu is currently valued at $0.000026, making my $124 remaining investment worth around $51.
IPOh-No
Another feature Robinhood offers is the ability to get in on pre-IPO shares of companies new to the public markets. Pre-IPO shares are like a behind the scenes, all access pass normally reserved for the largest institutional clients at the largest financial institutions in the world, not the average investor.
Enter Allbirds (BIRD), the hip, eco-friendly shoe company. I own a pair. They’re comfortable, stylish, etc. I thought this as good an opportunity as any to try out this feature.
I signed up, said I was willing to spend up to a certain amount for a certain number of shares and was “approved”. I’m still not sure if this is a lottery-based system or how access is determined. I was given access to purchase 5 shares at $15/share for an investment of $60.
At open, it was trading north of $25 and even touched $28. I finally caught the excitement of the first day “pop” in a new stock. At least for a moment. As of 2/23, BIRD is trading at $8.50/share. A 43.33% loss.
Speaking of IPOs, Robinhood’s (HOOD) own IPO was one of the most touted of 2021. I couldn’t get in on this… thankfully. Just a few days into trading in July 2021, it jumped from around $35/share to just over $70/share. The next day it was back to $50/share and hasn’t traded at that level since.
As of 2/23/22, HOOD closed at $10.86/share. Ouch.
Meme-Stock Fever
As I mentioned earlier, I used proceeds from some early, short-term investments to invest in a few shares of GameStop (GME) & AMC Entertainment (AMC) while all the fuss surrounding those stocks was going on. I didn’t make a lot, I didn’t lose a lot, but what a strange phenomenon. I’ll skip over these details in favor of articles we posted earlier this year linked below.
Think Investing is a Game? Stop.
Other Lessons
So, was anything learned from this other than I confirmed I don’t have the stomach, time, or interest to chase short-term fads? Here are a few thoughts.
Set Rules
Decide when you’re going to get out when you get in.
Having set rules with the SHIB investment allowed me to leave just shy of the current peak of that fad. But the chances of me repeating that performance are slim to none and helped confirm my view of the crypto market as a 24-hour casino.
Speaking of rules, I created a mid-experiment rule that if my Robinhood account reached $2,500, I would exit completely. In late 2021, the account was within $40 of this goal. I held to my rules and didn’t sell.
As of the afternoon of 2/23/22, the Robinhood account in its current state is worth roughly $1,330 on a total investment of $500, but nearly 46% off its peak. I’m still sitting on Bitcoin, Ethereum, Dogecoin and Allbirds. Will they get to $2,500? Maybe. Will I sell them and end this experiment before they do? Probably.
Control your apps vs. Your apps controlling you
I didn’t use either platform correctly, or enough.
As I blogged about back in 2020, I have notifications turned off on my phone. I didn’t open the app enough to truly experience how much it nudges you to trade, tell you how much things are up or down on a constant basis, etc.
But it was exhausting to keep up with it the little I did. The truth is this probably benefited me. Most people spend too much time interacting with the apps and are more inclined to change things around. The apps are designed to get you to interact. That’s how they make money.
Speaking of how they make money, they claim trading is free. It isn’t. None of these organizations are charities. Exactly how they make money is a different blog for a different day, but they are making money from their end users and a lot of it. Robinhood had $365 million in revenue in just the third quarter of 2021. More on this in a future blog.
Timing
While I got out of gold early to pursue more entertaining fads, it’s worth noting that, to this point in our recent rise in inflation, gold has done a terrible job at hedging against inflation. From 12/31/2020 to 12/31/2021, while inflation climbed to 6.97%, a basket of globally diversified stocks, represented by the DFA Global Equity Portfolio returned 23.20%, while gold actually lost value, down -4.33%. As most of that money ultimately went into an investment that nearly doubled, my timing there was good.
But, I got out of energy too early. My $50 investment would be worth more than $195 as of this writing, better than any performance I experienced aside from Ethereum, if I would’ve timed it right (I didn’t) and held onto the Energy ETF (I didn’t).
In the end, this is kind of the point. Even when you make the right call, you still must determine when to get in and when to get out and repeat that good fortune time and again. It’s just impossible. I’ve made money to this point, but there’s no way I’d have the nerves to put up with these kinds of swings if I was using retirement or college savings I couldn’t afford to lose. It would be wholly irresponsible knowing what I know about how markets work and what rewards investors in the long run.
Waiting for the next headline or push notification on your phone to determine your next investment isn’t a strategy. It’s lemming-like speculation where you chase returns and hope you get in and out before everyone moves onto the next craze.