Finally, after much anticipation, zero commission investing platform Robinhood (NASDAQ:HOOD) has gone public. It was, without a doubt, the most heralded market debut of 2021 so far as the public furiously commenced trading HOOD stock on July 29.
The irony of the situation is thick enough to cut with a knife. The Robinhood platform supposedly democratized trading to the public. And now, those same retail traders are paying the company back by gobbling up its stock shares.
So, should you take a long position in HOOD stock or drop it like a hot potato? Personally, I’m going to treat it like a low-priced cryptocurrency.
In other words, I’ll assert that a small position in Robinhood is appropriate because it will probably double or triple. At the same time, there are serious risks to be aware of.
The Inauspicious Debut of HOOD Stock
As I learned from InvestorPlace contributor Brenden Rearick, Robinhood planned to sell its shares at a range of $38 to $42.
The company filed a Form S-1 (the document by which it initiated the public offering) with the U.S. Securities and Exchange Commission (SEC) on July 1.
For the remainder of that month, I never stopped hearing about the Robinhood initial public offering on social media. The anticipation and buzz were deafening.
On the big day, July 29, Robinhood priced its shares for the public at $38, at the lower end of the range. That first day of trading, the stock tumbled 8%, disappointing the frenzied masses.
This turned out to be the third-worst performance, year-to-date, among IPO’s worth at least $1 billion. Moreover, HOOD stock made little progress on its second day of public trading, July 30.
Still, some folks (and funds) seemingly remained hopeful. Reportedly, Cathie Wood’s ARK Invest purchased around 1.3 million Robinhood shares.
Unlocked and Unloaded
Whether you intend to buy HOOD stock because Wood and ARK Invest did, is entirely your choice.
Just be aware that 1.3 million shares isn’t a massive position for a fund of that size. So, don’t feel the need to allocate a huge portion of your investable capital towards Robinhood.
And here’s another note of caution: Robinhood didn’t opt to have a conventional IPO lockup period for all of its shareholders.
Traditionally, employees/insiders would have to abide by a six-month lockup period, in which they wouldn’t be allowed to dump their shares after an IPO.
However, in the case of Robinhood, employees were able to sell 15% of their shares immediately after the stock’s public debut.
That might, at least partially, explain HOOD stock’s dismal first-day performance.
Moreover, after three months, those same employees/insiders will be permitted to sell another 15% of their Robinhood shares.
The Meme Du Jour
Apparently, none of these red flags kept the meme-stock crowd away on the morning of Aug. 4.
The Reuters headline couldn’t be misinterpreted, or ignored: “Robinhood surges 65% on Reddit buzz.”
So, despite Robinhood’s underwhelming market debut (or perhaps, because of it) the Reddit meme-sters are back at it again.
This is why I wouldn’t bet against HOOD stock right now. Attempting to short sell this stock could be highly detrimental to your financial health.
Are the social media traders attempting to repay Robinhood for innovating the no-cost, app-based market trading movement?
Or are they just fickle and picked HOOD stock out of a hat?
The answer is: no one knows, and it doesn’t matter. What matters is that the retail crowds have vast power and influence now, and they seem to have taken a shine to Robinhood (for now, at least).
The Bottom Line
It’s perfectly fine if you don’t want to take any position in HOOD stock at all.
I totally respect that stance. But just for kicks, it’s also OK to own a very small number of Robinhood shares.
Just know that the meme crowd is fickle. And the stock price could easily reach $100, or $10.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.