The New American Dream: Democratising Investing

0:00In really Robin Hood, the idea was a very powerful idea because what it stands for is ownership. A future owned by the few is a very fragile future. We want to make everyone an owner and we believe that ownership, broad ownership is essential to a free, stable and prosperous society. I think that message really resonated and made us at the time certainly the fastest growing brokerage. I think unlike 2020 and 2021, so you had retailers like GameStop, movie chains, the airlines, rental car companies, which is very different from today where our customers are by and large investing in these disruptor companies that are at the frontiers of their industries.

0:54And, you know, I think you can debate the price to earnings and all of those indicators, but I don't think you can debate that, you know, they're changing the world. I think there will always be humans making trades. I mean, if every retail trader used the same AI agent, then I think the opportunity and the incremental value of using that AI agent would probably decrease, which I think then would open up an opportunity to be a human trader. Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders, and politicians in the world, giving you, our listeners, an edge.

1:43The Master Investor Podcast is sponsored by LSEG, Interactive Brokers, the World Gold Council, and BNY Investments. Please do remember the views expressed in this podcasts are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show notes. My guest today is the co-founder, chairman and CEO of Robinhood, the financial trading app that really popularized commission-free trading, amongst many other things. Robinhood was founded in 2013. It IPO'd in July 2021 with a market cap of$32 billion.

2:26Nearly a year later, during the 2022 market pullback, the share price had fallen 80%, the market cap down to$6 billion. Well, today, the market cap is close to$100 billion, just over$90 billion. And the company has $380 billion of platform assets. They are back. They're bigger than ever. And I'm delighted to welcome their CEO, Vlad Tenner. Vlad, welcome to the Master Investor Podcast. I love that trip down memory lane. Yeah. Which part of it did you enjoy more than the other part? The rise rather than - Probably right now. Yeah, right now is the most fun. Let's jump into before the pullback, before the IPO, because I think it's a really interesting bit to get into, not so much on Robin Hood's history, but the market history.

3:15So 2022, you have such a great insight into what all traders are doing, but particularly retail traders are doing, obviously. Did you see bubble behavior in what your clients were doing before we saw that market pullback that you guys, your own share price got caught up in? Yeah, during COVID. I personally did have a suspicion about, I wouldn't say bubble behavior, but if you remember in 2020, the government, the U.S. government started printing a lot of money. I mean, we were sending checks to people's homes directly. And of course, at that point, if you looked at various instruments that would predict the rate of inflation, nobody thought inflation would increase.

4:20The estimates on the 10-year treasury were still roughly around 2%. And I was thinking to myself, how could this be? Keep printing money, but inflation doesn't go up. The government hasn't created some kind of perpetual motion machine. They can't violate the law of physics here. So at some point, some assumption has to break. And so it wasn't a surprise to me personally, even though I think to the market writ large, when we got into late 2021, inflation ticked up and eventually got to the highest level in decades, in over 30 years. And I think then once you start seeing the trajectory, it going from zero to 9%, 10%, there's a policy response, increasing rates, tightening that I think was very inevitable and predictable.

5:32And is it as simple as it being that inflation and the rate increases that we saw that followed? Or is there an additional point that there were signs even before that of excess valuation in the marketplace? I think, you know, the meme stock aspect in particular, I guess, is what I'm getting at. Could we have all stepped in back with hindsight and observed, yeah, these stocks aren't making money in their doubling in short space of time? I think these things are related at the end of the day. I mean, if you think about the timing of the most famous of the many sort of meme stock rallies, which was January of 2021, it was a couple of weeks after a large stimulus.

6:29So, and then we would see this in our data, right? The stimulus would come and, you know, within days or weeks, you would see that capital deployed in the market. So if you look at Robinhood's business and the amazing tailwinds we received during COVID, there were a few things. I mean, loss of lack of places to spend your money. Everything was shut down. People were cooped up in homes. So all sorts of digital activities, including investing in the markets, remained open. People had more time, right? So they could actually learn things about investing, follow the YouTubers and different influencers, rates were zero.

7:24So if you remember 2019, the Fed was hiking rates and we got to ballpark of over 2 % federal funds rate in 2019. But in 2020, we took them right back down to zero at the beginning of the COVID crisis. And on top of zero interest rates, we had the stimulus packages. So all of this was sort of geared towards stimulating the equities market, right? All of these effects. And in March, the equities market effectively crashed. It was a very short-lived, there was a V-shaped recovery. but were it not for the immediate stimulative response and the loosening of monetary policy, it might have ended up quite differently.

8:25It's interesting, those snapshots, because again, obviously I was doing CNBC at the time and our ratings spiked during that moment because as you said, people didn't have much else to do. So I think it was linked into, as you're saying, the attention turning towards the markets. Everything was closed but the markets. Yeah, exactly. Exactly. No, but I think why I wanted to start here, and we'll come to it in a moment, is whether you see the same similarities today. But it's why it's so interesting you kind of point to the stimulus checks and then the rates going up because that doesn't perhaps apply today.

8:56Before getting to that, though, I mean, the other thing I think it's fair to say, and I've seen you talk about this, that your clients, perhaps more than any others, partly because of your skew to retail clients. and so many of our guests have talked about this in recent weeks that this smart money versus dumb money, I think a lot of people now see the retail clients as the smart money. That's right. Yeah. I've always felt that. And they have bought the dips successfully, whether it was October 2022, whether it was April 25, March 2026. Is that still a trend that you see? Do your clients still seemingly know more than the rest of us and buy when things are cheap?

9:34Yeah. I mean, a lot of times the so-called smart money, I think, can be a little bit too smart in a negative way. It's like investing, institutional investing has gotten very indirect and abstracted in a way, right? Because you have these portfolio managers, they're looking at the macro, they end up rebalancing their portfolios, looking at these high-level indicators. And a lot of times, they'll sell out of a stock for reasons completely unrelated to the underlying business because of tariffs. Tariffs force them to move more capital around. And then they end up selling a company counterintuitively like Palantir that maybe is unaffected by tariffs or maybe affected positively even.

10:34Whereas a retail investor thinks about it a little bit more simply. They make companies, they're investing, they're buying and selling companies because they think that individual company is going to do well. And so you end up in these situations where they're maybe a little bit more resilient through macro events like tariffs and rates. They're just looking at, okay, is this company doing well? Do I like the products? Are the revenues increasing? Are they increasing their profit margins? What's the rule of 40 looking like? I mean, still sophisticated analysis, but it's not this sort of like, you know, Russia, Ukraine is happening.

11:20So I'm just going to dump equities and reallocate towards towards fixed income, like you see the institutions. I wanted to then touch specifically on your company during that period of time. As I said, you IPO'd July 2021. Clearly, then the market had a really tough period shortly after that. I mean, do you think you kind of got it away just in time? Because capital markets then were not particularly supportive of your type of transaction for a couple of years after that. Yeah, I think the IPO window basically shut for several years. And we have additional visibility into this because we have our IPO access product, the IPO window shut.

12:07And there was a crack a couple of years later, actually, with the Arm and Instacart IPOs. So two got in, I want to say 2023. And then there was another, you know, that was maybe a precursor to what was to come later. And really last year, it kind of reopened in full force. So what I wanted to then come to in a sort of roundabout way for this opening section is whether you feel a little sense of deja vu with SpaceX now listing, you know, that sense that you got yours away. If it had been a bit later, you might not have done. Markets had a tough year or two after that. Could there be a bit of a deja vu with SpaceX getting away?

12:55and now people wondering, can all of these companies follow OpenAI? I've now said they're probably not going to try and get theirs away. What do you think about the sort of market dynamics today compared to then? I mean, yeah, I guess there's this talk about whether we're in an AI bubble, right? And I think the difference that complicates the analysis is you have a lot of companies that are spending a lot of money on AI. And, you know, there's a business model in the AI industry around these model companies where companies and individual customers are paying for tokens. OpenAI has a subscription product that's got quite a bit of scale as well.

13:43So unlike previous bubbles where the business model was less clear, you have a business model, you have revenue increasing. So then the question is, okay, what are the dynamics? Is it possible that the companies that are paying for all of this AI start going from a mode where they're just willing to learn and aren't looking at costs very closely to now looking at ROI? And if they start looking at ROI, will that revenue per company actually go down versus go up? And is the rate of adoption by new companies, because there's a very, very long tail of companies who haven't touched it yet. And even consumers as well have that long tail.

14:34You look at Claude Code and it's, I think, on the order of low tens of millions of users. It's not hundreds of millions or billions. So there is that runway aspect of it where it still feels like we're early with existing revenue. So, yeah, I think it's a different analysis. As to timing of the IPOs of these companies, one thing I realized is it feels the time that we're in now has always felt consequential. It always feels like we're in a moment right now for which there isn't a precedent and we're kind of on the precipice of something. But if you look back, these cycles have been getting quicker.

15:24I mean, we're talking about the IPO window closing end of 2021 and starting to reopen in 2023. So if you take a slightly longer term perspective, what you're really talking about is, you know, timing a function that is essentially sinusoidal. And you can assume that none of these things are final. And if the window shuts for a little bit, it probably won't take 10 years for it to reopen. But I guess the underlying market dynamics, to go back to where we started from, that you observed in your clients' behavior before the big market pullback of 2022, you're not seeing that today. You're not seeing the kind of, look, SpaceX is not a meme stock, clearly.

16:14It's worth trillions of dollars. But there's similar comparisons of it's being driven up with a lack of earnings to crazy levels, falls back down again. I'm not comparing it to GameStop, but do you know what I mean? Are you seeing in your client's behavior anything that makes you think back to 2020, 2021, before the pullback in 2022? Well, the companies that our clients are investing in, I think by and large, are large companies that have earnings power and are at the frontier of their industries. So you mentioned SpaceX, You also have companies like NVIDIA, Tesla, the other chip makers. You know, the chip makers have been doing well as of late, and our customers have been interested in those.

17:15So I think unlike 2020 and 2021, where there was this dynamic of, I'd call it nostalgia, a lot of investors, a lot of our customers are millennials. They were investing in companies that were, in their eyes, unfairly punished by COVID era policies. So you had retailers like GameStop, movie chains, the airlines, rental car companies. You wouldn't say that these companies, even optimistically, I think, are at the frontiers of innovation. They're actually, due to the market environment and COVID and to some degree, everything going online and streaming or getting disrupted in some sense, which is very different from today, where our customers are by and large investing in these disruptor companies that are at the frontiers of their industries.

18:22And, you know, I think you can debate the price to earnings and all those indicators, but I don't think you can debate that, you know, they're changing the world. Yeah, unquestionably. Huge leading companies, huge revenues, growing revenues, I agree, even if the P multiples can be steep.

18:46This podcast is sponsored by Interactive Brokers. Building wealth starts with the right broker, and interactive brokers helps you reach your goals with powerful tools, global market access, low costs, and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com forward slash master investor. This episode is brought to you by LSEG, the leading global financial markets, infrastructure, data, and analytics provider. To learn more about how LSEG connects businesses, investors, and markets worldwide, visit lseg.com. Let's talk about Robinhood more broadly.

19:34And before getting to where you are today and the next steps, when you look back, what is the fundamental thing that helped you to gain traction early days. Commission-free trading was the big first step? I think that it was a combination of three things that led the product to really resonate. Number one, you mentioned it, commission-free trading. I mean, when everyone else is charging $7 to$10 per transaction and we're zero, we were both able to unlock a new market of primarily young people who didn't have the$1 ,000 or$2 ,000 you needed to get started. But later, we were able to get active traders on the platform as well.

20:25If you're an active trader and you're trading 100 or 1 ,000 times a month, you'd put up with a lack of functionality or features relative to other platforms because the value proposition economically is so strong. So the economics certainly won. Number two was in addition to pioneering commission-free trading and creating the gold standard business model of our industry now, we also pioneered mobile trading. So we were the ones that kind of led the platform shift to mobile before Robinhood. I mean, you had some brokers that had launched mobile apps, but it was very much an afterthought. But we made a bet that mobile was going to be big and in fact, it's going to be the primary way people engage with their finances because there's actual practical advantages to having it be on mobile.

21:19So we designed for that. I think Robinhood really created the mobile brokerage industry and the market, which has become increasingly the default market and has been a leader there. And then the third thing, which I think is important, is what the company stands for. So you look back at the global financial crisis in 2008, and a lot of our customers were kind of coming of age at that time. I graduated college in 2008. I went to grad school. My first month in grad school, my co-founder Beju's first month at his job, Lehman Brothers, went under. So you had the start of the global financial crisis.

22:05And the way that our generation perceived the global financial crisis was that it was a problem imposed on them by the financial industry. And the financial industry made poor decisions. The cost of it was kind of socialized to some degree. Nobody was punished. And the ensuing recovery went to the financial industry, people that were already invested and kind of insiders to some degree, the top 1%. This led to the Occupy Wall Street movement and this generational malaise in the early 2010s. And so I think people were in need of a solution. And I think what Robinhood offered was a solution that said, hey, rather than abandoning the system, because we have a really strong system in the U.S.

23:06here, compared to – I grew up in Eastern Europe, very, very different. We're talking about 10 % inflation like a disaster. Bulgaria in 1997 had over 2 ,000 % inflation. My last year in the country, there was a little pre-shock, 150 to 200 % inflation. So just staggering numbers. and in really Robin Hood the idea was a very powerful idea because what it stands for is ownership. I think a world where a future owned by the few is a very fragile future. We want to make everyone an owner and we believe that ownership, broad ownership is essential to a free, stable, and prosperous society. I think that message really resonated.

24:00And I think the three things together made us at the time, certainly the fastest growing brokerage. Oh, absolutely. I remember covering it all. And by the way, all three things together, I think were brilliantly summed up by the name Robinhood. And I want to come back to the name in a second. But I personally, I remember, I think it really resonated and caught my attention when we were covering it on CNBC, partly because of the name, summing all of that up. Come back to that in a second. Just you sum those things together. Clearly, you've taken market share and attracted some customers, as you said, that were trading elsewhere.

24:37But I think, as you're alluding to, you brought in a new set of customers that might not have been in the market at all in the first place. Where do you see penetration now in the US for not just Robin Hood, but for your broader sector? Are there more people, other than obviously generational effects, are there more people still potentially to come into the markets that haven't? Or is the last decade shift of that kind of given most of the low hanging fruit already? I think there's much more opportunity. Now the US is at roughly two-thirds, 65 % equity participation. And if you look back, the guys at Acquired podcast did an episode on Vanguard.

25:28It's a fantastic podcast. Yeah. So they plotted this and there were a couple of inflection points. There was the rise of the employer-sponsored 401k, which took equity participation from 20 % to something like 50, where it actually plateaued for a bit right after the global financial crisis. And then on the chart, you see the launch of Robinhood, which took it from the 50s to the 60s and has still been increasing. And now the question is, can we get from the 60s to the 90s? Maybe getting to literally 100 might be challenging. There's going to be a long tail there, but I think the 90s is doable.

26:13And what that requires is many people aren't eligible for an employer-sponsored 401k. So can we get them brokerage accounts? Can we get them invested? Can we do it from an early age? And that's why we're so excited about being the sole initial broker and trustee with BNY Mellon, powering the Trump Accounts Program, which is a U.S. program that gives every newborn child a brokerage account invested in a diversified group of companies from age zero. So I think that's the beginning of something that could take us to 90 plus percent equity participation in the U.S. over time, quite literally completing, well, never complete, but at least accelerating our mission and making everyone an owner in the U.S.

27:13at least. hi guys it's Wilf I hope you're enjoying this episode just a quick reminder to please hit follow or subscribe on your podcast or video app so that you never miss an episode and if you've got time please do give us a five star rating and leave us a comment it really helps other people find the podcast too now back to the episode so then snapshot for me where you think penetration is or the opportunity to grow it in a market like the UK? Well, I think the UK is a little bit further behind. Yeah, I think that one in six people have exposure to equities. And, but, you know, I see no reason.

27:58And if you look at the industry, you have the big brokers here that haven't gone commission-free yet. The full-service brokers, unlike in the US, have not adopted the business model, which I think is an inevitability, actually. I think over time, they'll have to adopt it. And the UK just hasn't had its industry shift yet. But if we look at the UK market, one of the reasons we get so excited about it, it's a sophisticated market. People understand financial services. There are similarities to the US in terms of the level of understanding and how people think about their money. There are some differences as well, but we believe that by bringing good product into the market, there's huge opportunity here.

29:02And we're seeing that with our UK launch. That's why we're continuing to invest. We're rolling out more. We're now at the stage where we're actually building UK specific products like our ISIS launch with the 2 % match. Yeah. And, you know, occasionally I'll say this and the IR team doesn't love it. And to some degree - I'm looking forward to this. Yeah. To some degree, it's aspirational, but I do aspire to be one of the largest employers in the UK. I think it's very fitting that Robinhood should be a UK company in kind of the same way it started as a US company. I mean, the legend of Robin Hood originated here.

29:52So we feel a calling to come here and serve this market. This is why I didn't want you to pick up on the name until we got to the UK section, which is, you know, obviously, as you say, it's a figure from medieval England. And look, I do think the name in the rise in the late 20-teens, early 2020s was a huge factor in the US. It will resonate here even more yeah i think people still feel by the way um the sentiment you were saying that occupy wall street embodied for three or four or five years in the u.s i think people still feel that there so i think i think there's a something to tap into there i'm obviously a believer with this podcast of um the need for growing equity ownership here and there's another statistic i'll throw out there which is that you know the gambling commission here especially 2024 i keep saying last year, two years ago, that 2024 report, over 50 % of the population placed the bet in a single year.

30:48So there is that underlying desire to take risk, but it's channeled into the wrong industry, in my eyes at the moment, rather than investing. So I think there's this huge potential upside, but at the moment, the message is not quite cracked through. Well, we'll keep working on it. Yeah, great. No, I think the country needs to save more for the long term. Let's talk about crypto because you mentioned commitment here. You've got the big announcement, which crypto is a part of. You're launching the public mainnet of Robinhood chain. For the uninitiated, what does that mean exactly? So it's a blockchain, a layer two built on top of Ethereum with Arbitrum technology.

31:35And the intent is for this to be the best chain for real world assets. And what I mean by that is for the longest time, and I think it's still very much the case, when people say crypto, they mean Bitcoin and meme coins and these assets that actually don't represent anything in the physical world. And Robinhood, for over a year now, our crypto strategy has been, can we actually take crypto technology and turn it into useful infrastructure for real world assets, assets that have fundamental utility, and in doing so, make it easier for people to own those assets worldwide. So, along with the Robinhood chain, we are progressing in our tokenization initiatives.

32:37And last year, we did an event in Cannes in the south of France where we unveiled our long-term tokenization roadmap. We said, okay, what's the value of tokenization? The value is in the same way that stablecoin has spread access to U.S. dollars to hundreds of countries worldwide, where it would have been very, very difficult for people to get their hands on dollars otherwise. and now they have a solution with stablecoin, tokenization will spread the value of U.S. equities and make it easier to own U.S. equities for people in the long tail of countries that don't have even as sophisticated financial systems as we have here in the U.K.

33:25So on the Robinhood chain, we will have stock tokens. Those stock tokens will be live in over 120 countries. So you'll be able to use a non-custodial wallet or the Robinhood wallet. We provide one for which there will be a really, really nice experience for trading and swapping stock tokens and get access to the entire universe of get exposure to the entire universe of U.S. listed equities. Right now we have 2 ,000 with our first phase of stock tokens and they'll be tradable 24-7. They'll also be portable. So you'll be less reliant on any individual broker counterparty. As long as the blockchain continues to operate, your tokens will be transferable and swappable.