Chit Chat Stocks - Does Robinhood Stock Have 10x Potential? With Travis Hoium (Ticker: HOOD)

Episode Date: May 28, 2025

On this episode of Chit Chat Stocks, we speak with Travis Hoium of Asymmetric Investing on all things Robinhood (Ticker: HOOD). We discuss: (06:54) Understanding Robinhood's Business Model (13:27) The Gamification of Investing (17:30) Robinhood's Evolution and Recent Developments (24:30) Future of Robinhood: Banking and Investment Integration (30:24) Robinhood's Market Strategy and Growth Areas (33:21) Diversification of Revenue Streams(35:35) Competition in the Brokerage Space (39:38) Tokenization and Blockchain Innovations (44:30) Leadership and Management Evaluation (47:06) Valuation Challenges and Long-Term Growth (51:10) Risks and Challenges Ahead (53:06) Asymmetric Investing Explained Travis's Twitter: ⁠https://x.com/TravisHoium⁠ Asymmetric Investing: ⁠https://asymmetric-investing.beehiiv.com/⁠ ***************************************************** JOIN OUR NEWSLETTER AND FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* FinChat.io is the complete stock research platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠finchat.io/chitchat  ********************************************************************* Bluechippers Club is a tight-knit community of stock focused investors. Members share ideas, participate in weekly calls, and compete in portfolio competitions. To join, go to ⁠Blue Chippers and apply! Link: ⁠https://bluechippersclub.com/ ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome into another edition of the Chitchat Stocks podcast. My name is Brett Schaefer and as always joined by Ryan Henderson. We have another guest today, going to be a fascinating interview with Travis Hoyum from Asymmetry Investing, a fantastic YouTube channel and investing newsletter that you can go check out. We'll have the links to both in the show notes. Also, the inspiration for Ryan and I to improve our background. So people appreciate that. I know not that many people watch, but for those that do, hopefully you appreciate that. Travis was the one that inspired us.

But Travis, we're talking Robinhood today. Robinhood Markets, I guess, the famous brokerage, the one that has tried to disrupt the industry and has successfully disrupted a lot of the industry, brought commissions to zero. We'll get into all this story here, but you wanted to talk with the history first of this company. So I'm just going to ask, what is Robinhood? How did they get to where they are today? And what is the perception of Robinhood by, say, Wall Street or the investment community? And do you believe that is accurate? There's a lot to unpack there.

So let's just kind of go all the way back. And one of the things I do with asymmetric investing is I like to think about and understand the history of disruption and why companies become disruptive companies. I think that's sort of the reason to be at least interested, if not invested in Robinhood today, is they're coming at things a little bit differently. They're gaining market share. They're growing really quickly. So what's going on under the hood? And the first thing that I think we need to understand with businesses like this, because I get a lot of pushback on a stock like Robinhood because it's just a brokerage business. This has been around for hundreds of years. We know the margin

profile. It's not all that exciting. What are they doing differently? If you go back to, I bought my first stock in 1995 to just age myself here. The internet existed by the way then, but it didn't exist in any way near what it is today. You would call orders in. I had a Fidelity account that I started. And an order was typically about $30. So there was nobody buying, you know, $200 of fractional shares in 1995. This was a very old school, you know, paper running around Wall Street kind of a time. So the first sort of step to the more modern brokerage industry is the internet first companies. So you have Scottrade is the one that I used. I remember $7 trades. That was the real innovation with Scottrade. And then all the other companies follow. There's mergers and all

that stuff that go on. But there wasn't anything necessarily that Scottrade did that other companies, Fidelity, Schwab now, who now owns Scottrade or the remnants of Scottrade, Nothing that they couldn't really do. So Robinhood comes along and it's kind of the, maybe not the first, but the biggest or most successful brokerage company that is mobile first. So I believe for quite a while, they were only a mobile app. There was no, you couldn't go onto your desktop and trade. That's something they've actually tried to remedy over the past six months or so.

But that was really the difference was they didn't have any of the cost structure of any of these more legacy companies. So there's no branches, there's, you know, there's no people in suits waiting for somebody to talk to you about your brokerage account. It's all digital, but it's not only digital, it's also mobile. And I think if you look at their app experience, you really see that just the way that the app is built is much more mobile friendly than it is on any of the other ones that have, you know, I have, I have all at least some money in all the accounts, I like to try all the brokerages. So it's far, far easier than interactive brokers, which is actually what I use for asymmetric investing. But it's much easier to make a trade

on Robinhood if I just have an idea and I want to put a few hundred dollars into it, let's say. That's how that system is built. So I think we'll probably come back to that, that there's just ways that companies being native to the hardware and the technology that exists at the time of their formation ends up being really critical. You know, this is, we can go through this time and time again. Like that's why IBM doesn't see the PC the way that Microsoft does. It's why Microsoft doesn't see the mobile phone the way that BlackBerry or Apple did. You know, Apple is an older company at that time, but they could kind of rethink the entire market rather than trying to shove their existing products into a different form factor, which is essentially what all the

other brokerages did. And so that's kind of created the foundation for the Robinhood that we know today. Okay. And let's talk about their, say, structure technologically. You talked about the mobile first stuff but what what what even allowed them to go commission free and how does that relate to their business model because i know there's and especially because of that famous michael lewis book uh there's a negative narrative around payment for order flow i mean when here at first you think wow this is not bad someone's paying for my trades but when you kind of learn the context of the full industry it doesn't look as bad so i guess what are your thoughts on that and how that narrative is built and whether the company is actually stealing from their customers.

Yeah. So just to put this really simply, so payment for order flow is there are companies, I think Citadel is the biggest one with Robinhood in particular, who pays Robinhood to basically be their market maker. So the order flow, when you put an order in on Robinhood, it has to go somewhere to get completed uh if you're on like an interactive brokers is probably a more efficient um order flow if you're like that's why hedge funds are going to be more on interactive brokers uh they don't really have they don't even have that capability on robinhood yet but they're going to find the best price on whatever exchange uh and and execute at that best price for you that's sort of their niche in the market is being very efficient on that side

of things. What Robinhood said was, okay, we're not going to be as efficient on a penny here or there on a stock price on a second to second basis, but we want to take away all the friction of orders. So instead of a $7 trade, which maybe makes putting $100 into alphabet stock infeasible for a lot of people, it doesn't make any sense, right? To pay 7% commission just to buy a stock and then you, by the way, you got to pay another 7% to sell it. Let's take that friction away. And the way that we're going to make money is we're going to route these orders to these companies that will pay us for that order flow. Because what then they're going to do is they're going to take these microseconds, milliseconds, these pennies, and they're going

to be picking them up constantly through the millions of orders that are coming through Robinhood through, you know, all kinds of other brokerages now. And that over time and with enough scale becomes a really profitable business for those companies. But the advantage for a customer at Robinhood is you get commission free trades. And that was sort of their innovation in the market. You know, the reason that people don't like it is somebody is on the other side of that making money. But that's always been the case in the market. You know, I interned at a hedge fund in grad school, the complexity and technological capability of those funds. And this was in 2009 was crazy. I mean, you were, that was when, you know, kind of the Michael Lewis stuff was,

that was when he was doing a lot of his research. And, you know, you would, they had a computer, the place I worked had a computer next to, you know, I think across the street from the Chicago Merchant Mercantile Exchange, you know, because getting that order from Minneapolis, where I was working to Chicago, took a little bit of time, took milliseconds, but it took time. And so it was faster to have that computer physically next to the exchange. And there's funds all over the country, all over the world that are doing that, that are doing these mini, tiny little arbitrages. And that's who's making money on those orders on a second to second basis. But again, this is a reason to be a long-term investor and not a short-term investor because those people have structural advantages over you in the market on a second-to-second basis, whereas they don't have an advantage over a long period of time, which is what I'm doing with asymmetric investing.

So that's sort of the way that they got into the market and the way that their business model works. Now, one of the ways that I look at that, because that allowed them to get into customers that other brokerages didn't want. And I've written about this as Trojan horse investing. This is one thing I need to rewrite this article and just kind of update it. But I think about if you're going to disrupt an existing business like this, how in the world are you going to do it? And one of the ways to do it is to go after the customers that nobody else wants. and if you're a customer who has a $500 account at Schwab and you say, Hey, I'm going to take my account to Robin hood. They're going to say, see you later. You're not, you're not a profitable

customer for us anyways. I'm not going to put a lot of effort. Now, if you're taking a million dollars out or $5 million out, they're going to notice, they're going to give you a call, but those small customers, those, those companies that have existing infrastructures and branches and people all over the world are not structurally built to make money on a $500 account. Robinhood is because it's a digital and mobile first company. So that's where they can scale their business. And yeah, sure, one $500 customer isn't all that big a deal. But if you have 20 million $500 customers, suddenly you've got a really big business. And that's essentially what they've done is they've sort of Trojan horse their way into the business. And that's, you know,

it's been a messy up and down process to get to where they are today, but without that and without that innovation that, you know, the payment forwarder flow and $0 trades, that isn't really possible. And so that's kind of how they've gotten to where they are today. Yeah. And I think a lot of people, maybe it's less so today, but might imagine that Robin hood's kind of the only one doing this. This is pretty common at this point for most brokerage platforms. Schwab does it now.

That's kind of how you get to commission-free trading. I want to talk, though, a little bit about Robinhood's perception. We were talking before we hit record about people – it's polarizing because there's been sort of this gamification of what is a pretty serious thing for a lot of people, which is their finances. Do you think – I guess what do you think most investors perceive Robinhood as and sort of Wall Street? This is kind of alluding to Brett's earlier question. And then do you think that's fair, I guess, thoughts overall on the gamification and whether or not it's helpful to Robinhood? This is where you can get to areas that I'm a little bit uncomfortable with some of the

things that Robinhood is doing. Prediction markets, I mean, I'll come back to that in a second, but that's an area where I don't love it, but I understand it. But I think when you're looking at the kind of investments that I do for asymmetric investing, oftentimes they're pushing an envelope in an area that ends up being a little bit uncomfortable. I mean, the company was private back then, but Uber, if you remember, when they were scaling their business, they would basically operate illegally in cities and then try to get to scale and get to the point where people would like their service so they could change the laws around the stranglehold that taxis had on the industry. was that slimy? Was that unethical? Maybe, but it also was something that was necessary to get to that point of disruption. So I don't necessarily love the gamification of investing, but that said, it is a much better experience on a mobile device. And I don't think that someone who

was going to get sucked into the gamification of investing in a negative way on Robinhood wouldn't necessarily have done the exact same thing on a different app. And as somebody who, look, I mean, this is an area where I'm really big into personal responsibility. And I think that at the end of the day is the biggest thing. And if it makes it easier for me as somebody who's a long-term investor, who's trying to buy phenomenal companies and hold them over a long period of time, if it makes it easier for me to buy stocks and to invest, then that's great. That's a win. And those are the kinds of people

that over a long period of time are going to be Robinhood's best customers. So does it make me a little uncomfortable? Yes. But that's sort of a trade-off that I'm willing to take with the disruption factor. Now you get into prediction markets and you get a little bit more into, should we be betting on basketball games on Robinhood? Maybe not, but that is technically legal based on the current laws in the United States. And there are areas where that could be really valuable in the exact same ways that hedge funds use all kinds of weird contracts, futures contracts to hedge out risk. So if you think Tesla's delivery numbers are going to be better or worse than the market thinks right now, you can put a position on in that. And that may

hedge your position in Tesla stock. That's a valuable thing to bring to financial markets. And that's the kind of capability that a lot of bigger investors have that we as sort of normal retail investors, if you will, have never had. So that's where I go, makes me a little uncomfortable, but there's value there. And by the way, it's not all that different than what a lot of really big investors are doing on a daily basis. Yeah, I don't personally love the idea of intermingling your investment portfolio with sports betting, but I guess it is ultimately – But if the Timberwolves win the championship, I'm going to have a couple hundred bucks that I didn't have before. That is – I guess that's the case for Robinhood there and investors.

Let's talk a little bit about the business model in recent years. Robinhood became a household name, I think, pretty much during the GameStop craze. Around 2020 through 2022, there was so much talk about them because I think they went public 2021, if I'm getting that correct, one of those years, and it created a lot of buzz. I think the buzz kind of died down through 2023, 2024, but the stock has recovered really well. So maybe just talk through what has happened over recent years and has the business model shifted at all? Yeah, it was 2021. They went public end of July. And that was in the middle of, you remember, all the trading craze, right?

And then the market kind of pulled back. So volume pulled back. Their revenue pulled back. The customers that were dumping money into the market were not dumping money into the market once you got to 2022, 2023. what and i didn't start covering robin hood until i think it was a little over a year ago um because that was really when you started to see them make a transition from a yolo platform to a real investing platform and i remember um so there's kind of two moments that i that i remember before covering it on asymmetric investing um and i bought robin hood and

SoFi as a basket and one of the reasons I bought both those two companies was I was driving around and there's a bunch of bank branches going up in my in the in the city that I live in in like this one specific area and I was like there's all these great mobile banking apps that are taking market share and you're building a physical bank and hiring people to wear ill-fitting suits and work in them like the same thing I've had the same thing happen to me where you see that real estate footprint, you go, this is almost insane that you're doing this in 2025. Exactly. And so you can see the fact that those existing institutions that are being disrupted by companies

like Robinhood don't have an answer other than we're going to double down on the same stuff that we've been doing for 100 years. and the it's it's sort of a classic innovators dilemma because um what they're doing is they're seeing you know what we need to do is we need to attract the high-end customer the business owner because we want their business banking here and then we want to build a personal relationship and we want to finance their two million dollar house that's what that's where they're making their money. And they don't care about the person that's starting a $500 brokerage account because it's not a profitable customer for them. But if you are attracting that $500 customer now,

who is then going to be the business owner in 10 years, and who is going to buy the $2 million house in 15 or 20 years, that's where Robinhood is today. So that's sort of the arc of their business. And that's what I think is ultimately the most important long-term trend for them. The other thing is, if you remember, I think it was their gold event in spring of 2024. That was when they announced the Robinhood Gold credit card. And it was a 3% cashback credit card. Now, if you've ever looked at the fee structure of a credit card, the way that it works is the the fee for like Square, Stripe is typically about 2.9%. The processor, so the Stripe or the Square Toast keeps about 1%. And then that other 2%, almost 2% is split between the issuing bank

and Visa, MasterCard, whoever the credit card company is. Okay. But the total fee is 3%. 3%. And Robinhood was saying, we will give our customers 3% back on every transaction. So they're losing money on every single transaction on that credit card. And anytime something like that happens, as an investor, you should look at it and go, what in the world are they seeing that I don't see right away? And if you looked at Vlad's interviews at that time, what he said was, yep, we're going to lose money on every single one of these transactions. But there's a whole bunch of other ways that we can make money long term. And we're taking this long term view. So if I'm building a relationship with Brett, who

is spending X amount of dollars, we're going to end up losing $20 a month on his credit card transactions, but he's putting $500 a month into our brokerage account. And that's growing over time. Oh, and now we're adding banking services and we're at, there's all kinds of ways that they can make money. And so I compared this actually the business model to Costco. If you look at Costco's business model, their business model is basically we make all of our profit on our membership fee. So to get a gold credit card, you have to be a member, a gold member, which is, I think, 50 or $60 per year. So Costco's business model is we're going to charge, I think it's like 120 bucks for a Costco membership. That is going to be all of our profits. And then everything that

happens inside the store, every one of those boxes is basically run break even. So that changes the incentives of everything that happens in that store. What is our display going to look like? It doesn't matter. It's on a pallet. We have one kind of peanut butter because we can order it in bulk and people will just buy it because it's half the price of what you can get at Target because Target has to worry about what does it look like on the shelf? What's our assortment? What is the profit margin that we have? So sometimes I'll post this on Twitter, but But this shows in the gross profit margin, if you just do a chart of Target, Walmart, and Costco. Target's is like just about 30%. Walmart's is a little bit lower than that. I think it's 24%,

25%. Costco's is like 9%. So not only are they ordering things in a completely different way that should be more efficient long-term, they're pricing them lower because they have these membership economics. So think about now, now equate that to, we're moving to financial services, but Robinhood can lose money on pieces of that gold membership because one, they have that 50 or $60 per year coming in. So they can say, we'll run the rest of this break even, and they'll still be profitable. But two, they could say, you know what, I'm going to lose money on the credit card because that's what Brett's going to use the most. And we'll make a little bit money on this piece or on that piece, on margin loans or shorting stocks, because they do make money on issuing

shares or borrowing shares to short. There's all kinds of other ways that brokerages can make money or banks can make money as they move into more of these banking services. But it completely changes the economics to have this be a membership economics business. And I think that's fundamentally what got me so interested. And they've really leaned into that over the past year, really leaning into everything gold. And that's one of the reasons that the revenue is up so much. Do you think, and you might've been alluding to this, long-term, do they want to become a full-fledged personal banking app for people? Because one of the maybe frictions of the industry, and I think this is why someone like SoFi has done so well with personal banking,

but with brokerage, it's probably irrelevant for their business, at least. Correct me if I'm wrong there. There's always been a separation between brokerage and your personal banking app. Do you think robin hood is successfully trying to merge the two and is that their strategy yeah i think everything that we see about them is is about moving into more banking services now do i see them getting a bank charter and doing fractional banking i wouldn't be surprised if a little bit like coinbase they don't do that and they say we're happy to have your deposits and we're happy to make money on those deposits of investing in treasuries and things like that. But we're not going to give out home loans and lever up those deposits in the same way that a traditional bank

would. I don't know exactly where that goes in the future, but I think that's kind of where they're trending is that we have credit cards. They're, I think, keeping most of that risk, credit card risk on their own balance sheet right now. They could offload some of that. In the future, but you know, as we move into more of their banking services and things like that. Yeah, I think there's no reason to think that the banking industry of the future needs to look like the banking industry of the past. I think this is what a lot of these companies are going to, we're going to kind of figure out is that people just want to have their money available and they want to have it on their app and they want the app to be really easy to use. if you've used the wells fargo app it's awful if you've used the chase app it's awful there's none of these legacy companies have a good digital experience so that i'll say hey american express is good they've actually done a great job now the most expensive of all of the cards yeah anybody who's a business owner knows exactly what i'm saying their fees are

even higher than the traditional credit cards but but yeah i mean that's the but that's the point of opportunity for them is that they trojan horsed into the industry with all these traders that nobody wanted these yolo traders that nobody wanted suddenly they're i mean their ira their retirement account balances are up i think it's 9x over the past year i just moved all my wife's stuff uh into a robin hood account uh my father-in-law started one it's you know you get a one percent two percent three percent bonus for moving money into robin hood it becomes really attractive and that's them growing up as a business i think to go back to ryan's original question that's the real transition over the past let's say 18 to 24

months is they've gone from a YOLO platform to a real adult investing finance app and platform with products like their retirement solutions and with the gold credit card. And that's what's attracting more and more assets and at least a little bit wealthier customer than they had previously. Yeah. I'm sharing my screen here to put some numbers on this. So you talked about that shift away from the YOLO customers. Shout out to Fin Chat here. The total assets per account has basically tripled over the last three years. It's still probably low relative to some of the other brokerages, but yeah, I think those $400, $500 YOLO accounts are maybe started to disappear after the 2022 timeframe.

I do want to ask about some of these other initiatives that they're working on. options is i believe a pretty big lever for them they introduced crypto a while back but they just saw a huge surge in crypto revenue recently what is the strategy over overall in those markets and then like how does it differ i guess from just pure stock trading in terms of how they make money this episode of chit chat stocks is brought to you by blue chippers club the club was started by two friends of ours with the goal of building a tight-knit community of stock-focused investors. You can break down your portfolios, pitch stocks, receive feedback, talk to other people about their stock ideas, get insights for your own portfolio, and participate in weekly calls with other

investors. We love this idea. We wanted role models when we first started to get into investing, and we think that joining Blue Chippers Club can really help you level up as an investor, bounce ideas off other people, talk with us, talk with many other investors that have joined the network. If you're interested in joining, head on over to bluechippersclub.com and hit apply. The link will be in the description. It's going to be similar on how they make money. So whether it's going to be a fee, like an option, I don't think they're going to get as much as a payment for order flow. I'd have to look at the details on there, but I think that's going to be more of a fee to trade kind of a thing. Crypto is going to be, again, a more direct revenue

source. I think those are just kind of expanding from the existing... Because they started with a relatively limited number of stocks too. So they're just expanding to the ecosystem of investment tools that people want today. So if you start with stocks, you got to add options, you got to add futures. You got to add crypto now. I think that's just kind of the natural expansion. They've also tried now to get into more active trading. I mean, that's what they call their active trader. So the legend stuff. I mean, that's not really what I use Robinhood for, but if that customer exists, why wouldn't Robinhood go after that customer and offer those kinds of tools? Because they want to be able to serve the whole market.

So that's, I think, things that have gotten attention for them. Crypto has obviously been a huge growth lever, but it has for all of these companies that have any sort of crypto exposure. So I think that's probably an area where they're just sort of riding the wave. Now, could they get into that a little bit more with tokenizing things, which we'll maybe talk about. That is potentially pretty interesting, and a lot of companies are looking at that as well. Yeah, we're going to get into more of the competition and the financials. But I guess as a lead in here, we've seen a big growth in transaction. I think it's called transaction another. You can correct me if I'm wrong on how they segment everything out and then their net interest income revenue. And that's a good thing because, look, rates have risen. We've seen a lot of this from financial services company.

Their net interest income has soared. How are you looking at when it comes to valuation? Is this part of their move into personal financial services? Is this an important part of the business now? Just kind of talk the listeners through how you're looking at these new emerging growth segments. Yeah, so that's going to be things like their credit card. So there are fees that go along with the credit card. And they don't make 3% on every credit card transaction, but they do make 1 point something percent on each credit card transaction.

And that is going to end up in that interest in other line item that you're talking about. So we're seeing something similar with like SoFi. Their financial services business is growing at like 100% a year. That includes things that are sort of lumped into Robinhood's traditional business. But that's how the segmentation works is they have a line item that's crypto revenue, options revenue, equities revenue, and then all of these other things that we're talking about, Robinhood Gold, the credit card, banking services that they're starting to roll out, their advisor fees, those things are going to end up in kind of this other bucket. And then we'll probably get more as that business grows as it has, we'll get more disclosures on that. Or we get sort of like mini disclosures. They have those monthly dashboards where you can sort of suss out exactly what's going on. But it doesn't include some of those kind of other segments. There's also going to be an arbitrage between the money that they're able to make on the assets, the cash sweep on the accounts, and then what they're actually offering to customers. So they are going to make a little bit of money there. That's where that's going to end up. So as they add more of those services, that segment is going to continue to grow. So I look at that as the diversification and continued maturity of the business.

When I look at some of the financials here, I think the accounting for cryptocurrency revenue is a little wonky where they have to buy and sell it. And so it gets treated as like a transaction, if I'm not mistaken, the way Cash App does. Probably not now. No, I don't think it is. Then I was going to ask, how much do you think equities and stocks overall will account for in the future? But it looks like at this point, they've really diversified away from equities overall. In the long run, is the equities trading just this small portion of Robinhood's overall business? From a revenue perspective, probably,

just because the margins are going to be much, much lower than you are on an option. So if you've ever traded an option, even the spread between the bid and the ask price could be 5% of the value of the option. Whereas a stock is going to be... They can offer the free trading because the spread between the bid and the ask is going to be usually a penny or maybe a couple of pennies. And then where they're making money is going to be a fraction of that penny through the payment for order flow. So just the volume could be much, much higher in equities trading. The assets held can be much, much higher in equities trading, but the revenue is going to be lower because that's not. And again, that's why you're trying to move into some of these other markets, because it's a higher margin business. That's where the real financial opportunity is. It's a little bit higher risk. So that's sort of the offset. But that's going to probably be the financial impact is that the equities piece is never really going to be the driver of the business.

because it's just... If Citadel is picking up pennies in front of steamrollers, then they just get a fraction of that penny. So I think that's the way to think about it from a financial perspective. So to extend your Costco analogy, the equities trading is sort of the $1.50 hot dog and soda, sort of the loss leader for Robinhood's business. Good analogy. Yeah, I like it. I'm going to steal that one. All right. Let's talk a little bit about competition. There's obviously a lot of brokerages out there. Who would you say they're primarily stealing market share from? This is an interesting one because all of those companies, all the big competitors, the Schwab's interactive brokers are growing. So I would say they're

starting to probably steal market share from the likes of Schwab and Fidelity, kind of the old guard of brokerages. I mean, we heard stories about this last time they offered some of those bonuses for moving money over to Robinhood. So they'd offer a 1% or 2% bonus. And you hear stories of somebody with a million dollar account telling Schwab that they were moving their stuff and they'd be like, hey, by the way, we'll give you a 2% to stay. Not a great position, not a great look for them if you have to pay your customers to stay. But that's something that I think is at least getting a little bit of traction is that those companies have to at least think about Robinhood. I think where they're probably going to have more success, though, is the people

that don't have an account in the first place. And you can see that in the numbers with how big those accounts are i mean i don't uh the the screen's really small but i think the average account is like eleven thousand dollars uh the average uh what that they have under custody 15 okay 15 yeah but not a i looked at interactive brokers today if you just divide their their assets divided by the number of accounts i think it's like 170 000 per account so big difference yeah so much much smaller accounts and this is going to be the people they they disclose some of this stuff, right? It's mostly millennials and younger on Robinhood. So it's going to be the people who are, Hey, I need to start a, a Roth IRA. I need to, I'm looking for a new credit

card. Why don't I just open a brokerage account? Oh, now I can open a Robinhood account with this gold thing. Oh, now I have a brokerage account. So I can add a little bit of money to that. That's I think where they're probably stealing the customers is the customer that didn't exist in the first place to those older brokerage companies. So it's kind of like stealing the future customer rather than stealing the old customer. At least we don't see that in the numbers yet. Again, this is what's hard about disruption is disruption typically comes from the bottom up. So you're not going to build a brand new app and say, you know what? I'm going to go after Goldman Sachs' biggest customer. That's who I'm going to get first. You go and

you say, who do all these companies not care about? I'm going to care about them more than any of these other companies. And then I'm going to move up market. And it happens slowly. And then all at once where suddenly 3% back cash, 3% cash back credit card. I don't care if you're spending a thousand dollars a year or a million dollars a year on your credit card. That's a really compelling solution. And so that's the kind of thing where it may start with YOLO trading, But suddenly you're starting to move up market pretty quickly. Yeah. When you said that, I just imagine because I remember Buffett saying that Goldman Sachs was their broker.

I imagine Robinhood calling up and say, hey, I know you have this, you know, they're processing you billions of dollars of trades probably a day. But why don't you come to our little app here? Yeah, it's not going to work. You got to go with the people that are young. And what's nice is I don't know if they give out any demographic disclosure is if these people are in their 20s and 30s, you know, when you're in 20s, you don't have that much savings. typically. But when you get into your 30s and 40s, on average, you are building up a lot more savings and that can help them grow that revenue per user or their assets per user over time. Let's move to some other questions. This one came from the audience. I don't

actually know much about this, but let's just talk about competing. I'm just going to ask this. I don't know exactly what it even is. Competing with T0 and the tokenization of assets yeah so t0 is a company that's basically using the the concept the potentially disruptive concept of the blockchain is that you can put any asset out there on the blockchain um and then you can tokenize it so make it into a token so uh you can take chit chat stocks and you can say hey we're gonna split this up into the ownership of this podcast into 100 tokens. And we're going to sell those tokens to people. And then here's the deal behind it. Our revenue, we share such and such a cut. Similarly, you would with a typical business, except instead

of doing it in a law office, you could just do it on the blockchain. That's sort of the theory behind T0. And so the idea with some of these moves that Robinhood is either making or talking about is that they want to get into this securitization market as well. The way that this is going to first work is probably with bonds. We're starting to see this a little bit with bonds already. But stocks are pretty liquid and pretty easy to buy and sell. Bonds are not. And so this was one of the strange things when I was interning at the hedge fund is just how the back end of this stuff works. A ton of transactions happen on just Bloomberg chat. It's like millions of dollars, probably billions of dollars just going back and forth on Bloomberg chat. I chat

my broker at Goldman Sachs and I say, hey, I want to buy some, I don't know, coin-based bonds. What price can you give me? And now here's what I do to buy. Here's what I do to sell. and then they've got to go buy or sell those bonds on the back end. But you may have to message multiple different brokers to find different prices. That's sort of the way that it works. And it's very inefficient compared to the way that most trading that you and I see on a daily basis, the stock trading where the spread is a penny or two. And I think that's the first thing that's going to move is why don't we just move these things on chain and have them be tokens that you're buying. And then I'll even that payment

instead of going through some sort of clearinghouse could just be, Oh, I'm going to just pay Brett or Ryan's wallet, uh, the, the quarterly or semi-annual bond payment that I owe them. That's sort of the theory behind it. And then there's all kinds of different things. I mean, T zero is tokenizing companies. So you can raise money for your company with T zero. So that's probably a little bit more bleeding edge than Robinhood would be moving, at least initially. But that's sort of the theory behind it is that a lot of these different assets, maybe your house, maybe your car, maybe like all kinds of different things could just become

a token instead of a legal document that's much more expensive in the background. And it would open up potentially new business models. Robinhood's sort of getting into that. SoFi, by the way, talked a lot about that on their last conference call. I thought that was really interesting. So all these companies are sort of circling that area, but we don't know exactly where it's going to be in five or 10 years. All right, folks, if you are a regular listener to Chit Chat Stocks,

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All right. Yeah. Sounds like a moonshot. And if it becomes more legit, Robinhood, I guess, is at least trying to have. It's going to happen. It's just a matter of how does it happen? What does it look like? What's the revenue structure?

There's a lot of details we don't know. But again, this is where I want to be owning the disruptor, not the disrupted, which is what I think kind of these legacy companies are going to end up being. Okay. Okay. And speaking of disruptor, what's important with these type of companies is the leader and I guess the leadership team in general. Let's talk management. Do you have confidence in the founder, Vlad Tenev? What do you think of him and the leadership team at Robinhood in general? I think he's been really impressive, at least over the past 18 months or so.

That's when I started following the company a little bit more closely. I think you could go back to some mistakes that they made during the pandemic in particular and criticize them for sure. But this is also a case where we're talking about a very high stakes business and a very young founder. And I always want to be over-indexed on founders as an investor. They just have the ability to navigate their companies and adjust more quickly. They're able to think a little bit more long term than most CEOs or executives are. And I think he's done a really good job handling things. You can sort of see the maturation of him as a CEO and as a public CEO just over the past year or two.

You know, the presentations that he's giving now. I mean, everybody's copying jobs with the keynote presentations. But I think he really articulates the vision of the company very well. And then they've been executing extremely well too. So that's what you want to see as the founder and CEO of a public company. And so I don't really have any major critiques, at least in the past 12, 18, 24 months. There was a lot of crazy stuff going on during the pandemic when they rose to prominence. I mean, you can look at their assets under custody and it just, I mean, it had to be grown what, four or 500% per year. That is really hard for any company

need to handle so that that's probably when they made a fair number of mistakes yeah and i just checked his age right now 38 years old and when you're someone in your young 30s managing something that big you know five to ten years ago that's just going to be tough there's going to be growing pains but it seems like um i know this is kind of a cliche but he grew up with the business and the last as you mentioned i agree the last few years it's just been more impressive how and how professionalized. And how many times do we see that in tech? I mean, Mark Zuckerberg, you would have said he was kind of a clown 10 years ago. Spotify, Airbnb, Uber, although that maybe didn't end up the best. Yeah, Uber had to make a change. But I think you do see this with

the CEOs that stick around for a long period of time is they're not the same person at 38 that they were at 25 when the company started. Okay, let's talk valuation. I guess, first of all, How do you value this business? And what makes this or is this an asymmetric stock? So this is an asymmetric stock. I have the hardest time right now with their valuation. So as we're recording $57 billion market cap, and the revenue over the past 12 months is 1.9 billion. That's expensive. So, or sorry, total revenue was 3.3 billion. But still very, very expensive. You're getting up close to a 20 price to sales multiple. Now, high growth company, I have not bought shares in a little while. So I don't have on hand exactly

what I'm up, probably over a hundred percent in the shares that I have. So I was buying it a little bit lower price, a little where I could maybe justify the price a little bit more at, you know, a eight, nine, 10 price to sales multiple. But I think this is one of those cases where you need to look out 10, 20, 30 years and think about where is the industry going and who is going to lead. And maybe this is the kind of stock where I think the tailwinds behind them are phenomenal. I think that their customer base is going to mature and is going to continue, continue to go up that age and income ladder, that's going to be something they're going to be able to ride for the next 50, 50 to a hundred years. They're going to continue adding

more and more services. So, you know, we talked, the credit card didn't exist 18 months ago. Now that's a huge revenue driver. They haven't gotten into institutional, you know, they don't have custodial accounts. There's all kinds of things that they can add from a product or services standpoint. They haven't expanded much internationally. So a ton of growth runway. And in general, you want to own the kind of companies that have that kind of long-term growth runway. The challenge with valuation, the way that I think about a company like Robinhood is I want to own that company, maybe even buy some at a price like a questionable price like we're at today. But if it drops, that's when you want to be adding more significantly.

So maybe I don't love the stock at 64, but if we go through some sort of a recession or market pullback and the stock goes to 25, now you're going to see me getting much more aggressive with a stock like Robinhood because I like the long-term trends. That's the most important thing is, is the business performing well? Is the market that they're growing into doing well? Are they doing all the right things from a product standpoint and a strategic standpoint? So I love everything that they're going there. If the biggest question is valuation, I don't want to have that hold me back from owning the stock. And I'm definitely not going to sell because the valuation is too high, but it's going to make me a little bit more hesitant to be a buyer at this

sort of a price. But this is why I built the asymmetric portfolio the way that I do is I have basically a pool of stocks that I can go pick from every month when I make my buys. This month, given the valuation, maybe Robinhood isn't one of those stocks, but it's already grown into one of the biggest positions in the portfolio given the performance of the stock. So I don't really need to buy anymore. But if we get that pullback, let's say the market does do a major pullback and we start, everybody starts freaking out. Now I can get, get to go, okay, what do I think is cheap? And 10, 20 years from now, I'm going to look, this is a look at this as a generational buying opportunity. That's where it would fall into that kind of category. You could say that

it was that, you know, what, 18, two years, two years ago, 18 months ago, or it just, I think it was trading for less than the cash that was on the balance sheet for a little while. yeah it's been a nice uh one or two years for shareholders now this was a fantastic discussion i think we had a lot of this stuff on our notes here if there's anything we missed and uh feel free to add that but i want to ask our last question which is the pre-mortem you already talked about valuation so excluding valuation just uh kill this idea why would it do poorly? Why is Robinhood's business not going to grow as you expect and become the disruptor in the industry? What would stop them? This is a really competitive space. And that's something

that I think keeps a lot of investors out of brokerage, out of banks, out of these kind of financial services businesses, because they do seem to kind of ebb and flow. So if Robinhood goes from being the hot popular platform to it's not so hot anymore. Maybe they make some sort of misstep and record a huge loss or lose people a bunch of money somehow. That's the kind of thing where their reputation is kind of sky high right now. It may not always be the case and somebody else may end up taking that kind of disruptor space. So you combine that with the valuation piece. And I think those two things are, it's definitely higher up on the risk curve. And this is what, as an asymmetric investor, I'm living further out on the risk curve than the average

stock, which is long-term going to pay off. But it also means that my batting average is going to generally be lower. So you're going to hit some home runs, but you're not going to get all of them right. And so if you're going to be investing in this kind of a stock or invest the way that I do. You have to understand that balance between risk and reward. And the fact that every article, every spotlight article I do, I write at the bottom, how can this zero X? And if Vlad leaves and the company does something wrong financially and customers suddenly flee, you could have significant losses on your hands pretty quickly with a stock like Robinhood and shares could fall 80, 90% because that valuation is so high. So you add all of these things

together. And there's a lot of risks that are sort of baked in, in a very competitive environment. Okay. Before we get out of here and hit the disclosure, give an elevator pitch for asymmetric investing. Asymmetric investing is my way to show exactly what I'm doing and how to beat the market long term. So what I'm doing is looking at 10X opportunities in the market. I am a long-term buy and hold investor. I'm going to over index to not sell. And I'm tracking that portfolio over a long period of time. And that I think is really the transparency that more and more investors need is I'm going to show you the research. I'm going to tell you why I'm buying a stock and I'm going

to tell you when I'm buying it. And if you buy those compounders, that's how to beat the market. Take a little bit more risk. That sounds dangerous, but it's not over a long period of time because you're buying compounders, you're leaning into disruption. I talk about winner-take-all markets, the smiling curve. There's lots of concepts that I go through that a lot of these companies fall into. We've talked about that a little bit with Robinhood and it's working out really well. 2024, the asymmetric portfolio was up 35.3%, beating the market by about 12 percentage points. So far this year, up 23% and the market's only up 1.5%. So those asymmetric investors who are following along have some some pretty nice wins on their hands this year. Beautiful. Thank you once again,

Travis, for joining the show. As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I or any podcast guest may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you once again, Travis. And thank you to the listeners for joining this show. And we'll see you next time. Thanks for watching!