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RobinHood co-founder, @vladtenev, has been busy the past week.
In addition to internal crisis management, Vlad had discussions via several different mediums, from CNN to newspapers to various YouTube channels.
1/n
In addition to internal crisis management, Vlad had discussions via several different mediums, from CNN to newspapers to various YouTube channels.
1/n
Sadly, the mainstream TV "news" showed how broken it is: the YouTubers' nuanced discussions are vastly superior.
The CNN & CNBC hot-takes bring shame to an industry that should pride itself in truth-seeking, not emotional beratement.
Looking at you @ChrisCuomo
2/n
The CNN & CNBC hot-takes bring shame to an industry that should pride itself in truth-seeking, not emotional beratement.
Looking at you @ChrisCuomo
2/n
Given how HUGE the RH, $GME topic was just 2 weeks ago, the YouTube videos have been under-watched.
Ex: the below video with Vlad and RH's COO only has ~2,000 views.
I get it, not everyone has time for 30 min interviews - my brief thoughts follow.
3/n
Ex: the below video with Vlad and RH's COO only has ~2,000 views.
I get it, not everyone has time for 30 min interviews - my brief thoughts follow.
3/n
Vlad is doing the right thing - he's addressing the topic head-on.
The conspiracy that evil hedge funds "made" RH restrict $GME is so tantalizing, that it is hard to put back in the bag.
But, as I've written about, it's bogus (ex below).
4/n https://twitter.com/compound248/status/1355274740412375041?s=20
The conspiracy that evil hedge funds "made" RH restrict $GME is so tantalizing, that it is hard to put back in the bag.
But, as I've written about, it's bogus (ex below).
4/n https://twitter.com/compound248/status/1355274740412375041?s=20
RH had a capital issue, plain and simple.
It occurred because RH's risk management process nearly failed them. "Nearly failed" sounds damning, but realistically what happened was not modelable.
RH's massive success, to that point, laid the groundwork for the challenge.
5/n
It occurred because RH's risk management process nearly failed them. "Nearly failed" sounds damning, but realistically what happened was not modelable.
RH's massive success, to that point, laid the groundwork for the challenge.
5/n
In financial markets, un-modelable outcomes occur with disquieting frequency.
Practically speaking, 5 or 6 sigma events should "never" happen, yet we keep running into them.
That doesn't mean "abandon the models." It means the models should be an input, but not THE input.
6/n
Practically speaking, 5 or 6 sigma events should "never" happen, yet we keep running into them.
That doesn't mean "abandon the models." It means the models should be an input, but not THE input.
6/n
RH's $GME et al problem was the confluence of a variety of seemingly uncorrelated factors becoming very correlated, breaking down other expected correlations.
Two evergreen solutions are to always *hold lots of extra capital* and allow for common sense adaptations.
7/n
Two evergreen solutions are to always *hold lots of extra capital* and allow for common sense adaptations.
7/n
For RH to bridge the time gap between "not having enough capital" & "having plenty of capital," RH needed to hit pause on a small list of securities. It literally could not afford for clients to add more of the same risk to its books.
I discussed this ad nauseum in my primer
8/n
I discussed this ad nauseum in my primer
8/n
RH had no desire for $GME et al's stock prices to go down (or up) - it simply needed clients to stop adding incremental GME risk until RH had the capital to support that risk.
Vlad and the RH team acted incredibly quickly.
Truly.
9/n
Vlad and the RH team acted incredibly quickly.
Truly.
9/n
Think of what they accomplished in five days:
1) Worked with DTCC etc to manage down capital requirements;
2) Drew down LoC;
3) Implemented trading restrictions on its client base to buy time (which was needed to protect its clients; I know many people disagree with this);
10/n
1) Worked with DTCC etc to manage down capital requirements;
2) Drew down LoC;
3) Implemented trading restrictions on its client base to buy time (which was needed to protect its clients; I know many people disagree with this);
10/n
4) Dealt with resultant blowback;
5) Processed record new customer *signups* throughout the crisis;
6) Raised $1 billion of capital in ONE DAY
7) Dealt with, and provided access to, a deluge of media inquiries;
8) Raised a further $2.5 billion in ONE WEEKEND;
11/n
5) Processed record new customer *signups* throughout the crisis;
6) Raised $1 billion of capital in ONE DAY
7) Dealt with, and provided access to, a deluge of media inquiries;
8) Raised a further $2.5 billion in ONE WEEKEND;
11/n
9) Reinstated full trading within a few trading days;
10) God knows the behind-the-scenes work that RH has been doing over the past week;
11) Dramatically increased transparency;
12) Almost certainly unexpected challenges, like employee concerns, safety threats, etc.
12/n
10) God knows the behind-the-scenes work that RH has been doing over the past week;
11) Dramatically increased transparency;
12) Almost certainly unexpected challenges, like employee concerns, safety threats, etc.
12/n
13) Embraced a healthy conversation around PFOF and "zero commission" trading (my thoughts on Payment For Order Flow linked below).
Whew.
This was a PhD level Crisis Management course, being forced on RobinHood in real-time.
13/n https://twitter.com/compound248/status/1359256771005669376?s=20
Whew.
This was a PhD level Crisis Management course, being forced on RobinHood in real-time.
13/n https://twitter.com/compound248/status/1359256771005669376?s=20
Love him or hate him, Vlad did the right things, given the hand he was dealt.
When I make mistakes, I work to fix them. Vlad can't, and shouldn't, undo your losses. That is your risk and it truly is not his fault.
He's not hiding - he's working to improve the situation.
14/n
When I make mistakes, I work to fix them. Vlad can't, and shouldn't, undo your losses. That is your risk and it truly is not his fault.
He's not hiding - he's working to improve the situation.
14/n
Yes, RH made plenty of mistakes, but it did not catalyze the squeeze - the WSB crew did. The tidal wave hit RH as a side effect.
RH is, oddly, stronger as a result of this mess. That shows strength. Crisis defines leadership more than success.
15/n https://twitter.com/compound248/status/1358046760556462085?s=20
RH is, oddly, stronger as a result of this mess. That shows strength. Crisis defines leadership more than success.
15/n https://twitter.com/compound248/status/1358046760556462085?s=20
Sadly, once $GME went parabolic, losses were inevitable.
Many people were hurt via the $GME squeeze.
Once it took off (), the ONLY possible outcome was subsequent collapse. It could not be avoided.
Some were hurt, while others made fortunes. Such is life.
16/n
Many people were hurt via the $GME squeeze.
Once it took off (
), the ONLY possible outcome was subsequent collapse. It could not be avoided.Some were hurt, while others made fortunes. Such is life.
16/n
Investment is a risky endeavor; speculation even more so.
Neither is for the faint of heart, or wallet.
While some people really do "get rich quick", most of us cannot - better odds of get poor quick.
BUT, nearly all of us can "get rich patiently." That path is well-trod.
17/n
Neither is for the faint of heart, or wallet.
While some people really do "get rich quick", most of us cannot - better odds of get poor quick.
BUT, nearly all of us can "get rich patiently." That path is well-trod.
17/n
Get Rich Patiently is the conversation we should be having.
My hope is that Vlad & RH build more & more tools for RH users that help nudge & automate *that* process.
Democratizing "trading" is a pricey video game.
Democratizing "wealth creation" is a mission, a calling.
[end]
My hope is that Vlad & RH build more & more tools for RH users that help nudge & automate *that* process.
Democratizing "trading" is a pricey video game.
Democratizing "wealth creation" is a mission, a calling.
[end]
