Robinhood CEO on short seller squeeze: Retail investors are feeling ‘empowered’

AMC and Gamestop surge as the short seller squeeze continues. Robinhood Markets Co-Founder and CEO Vlad Tenev joins Yahoo Finance Live to discuss how his company is handling the rise in investors.

Video Transcript

ZACK GUZMAN: Well, it has been nothing short of amazing to watch the trading action in GameStop, up more than 300% in just three days due to retail investors teaming up to expose giant hedge funds who were heavily short the stock. It sparked an epic short squeeze that's now spilling over into AMC and other stocks being talked about on Reddit.

But arguably, none of that may have been possible without Robinhood, the platform many of those retail investors have now been using that's become incredibly popular with a younger clientele. And for more on that, we're very happy to welcome in the CEO and co-founder of Robinhood. Vlad Tenev joins us now. And, Vlad, thanks for coming on here.

I mean, you were out with an op-ed earlier this morning basically defending the idea that retail investors like the ones on your platform need to be respected, that those that look down on retail investors don't have the interest of everyday Americans at heart. What did you mean by that?

VLAD TENEV: Thank you for having me, first of all. As part of running Robinhood and operating the company, I get the chance to talk to customers. And we hear from customers all the time that financial companies and financial services firms have been looking down on them and saying, you're not good enough to invest for yourself. You should let the experts do it for you.

And Robinhood, for the first time, has been treating these customers like adults and saying, yeah, you can take investing into your own hands, and be in control of your finances without relying on someone to do it for you. And I think what you're seeing here is that turning into a movement, and there being some cultural relevance around the idea of investing.

And people are asking the question of you look at the financial system, for the longest time, people have been giving their money to funds. Those funds have been giving it up to other funds. And there's, like, this chain of investing happening. And I think people are realizing that they can just invest their money directly. And you're seeing that increasing with the proliferation of retail investing through 2020 and into 2021.

AKIKO FUJITA: But is that what's motivating the stock moves that we've seen over the last few days? If you look at a name like a GameStop, now AMC, is it essentially these retail traders trying to send a message? Is it a revolt against the institutions?

VLAD TENEV: I think that, you know, even since the beginning of the year, there have been lots of different things going on in the markets. For example, at the beginning of January, there was the huge activity in cryptocurrency. So I think, you know, the markets are evolving on a weekly, somewhat daily basis. It's hard to say that there is one unique driving factor behind any of these things.

But what is very interesting is you have the intersection of social media and financial services, and it's creating sort of this collective activity, collective consciousness around finance that has made it more culturally relevant, very much in the zeitgeist. And it's just interesting to see.

ZACK GUZMAN: Yeah, Vlad, can I ask you a personal question on all this too-- because we're using the term retail investors, but a lot of this is strangely targeted towards Robinhood itself, right? You hear this on other networks all the time-- guests might come on, people might talk about the idea that Robinhood traders are dumb, which is kind of amazing to think about because you guys are an exchange, you're a platform, right? Kind of like a Charles Schwab, like a Fidelity. You don't hear anyone saying that Fidelity traders are idiots. So what do you think is the main driving force behind that take?

VLAD TENEV: Yeah, well, I think there's two things there. The first one is it's not a surprise to us that Robinhood throughout 2020 has become synonymous with retail investing in America. So people use Robin Hood to describe just retail investing nowadays. And it's come in the context of us helping millions of people beginning their investing journey, starting with the market rally that began in March of last year and continues today.

I think the second point, it goes back to what I said initially-- that retail investors and individuals have felt like they've been talked down to. Lots of them have felt like they haven't been taken seriously. You know, there's this term, sophisticated investor, that's been thrown around. So there's an idea that they're unsophisticated. And I think that people are seeing that they now have the ability to invest, and they're empowered. And we're really excited to facilitate the entry into the market of millions of people and give them the ability to plan for the future.

AKIKO FUJITA: There's certainly an argument to be made, as you have said, Vlad, that, you know, these investment strategies shouldn't be left alone to the wealthiest Americans. But it's also true that you've got a lot of users on your platform who are essentially learning on the job, so to speak. They are getting into the market for the first time, taking very risky bets, particularly as it relates to options trading. And I wonder if you look at that, how much responsibility do you think Robinhood bears to making sure that these traders understand the risk of their investments, and making sure that they do, in fact, take sound investments?

VLAD TENEV: We do feel that it's very important to give our customers all the tools and information they need to make informed investing decisions. And that's why we've prioritized educational resources like Robinhood Learn, which more than 3.2 million people visited last year. Actually, just last week, we updated Learn and launched a revamped version of our portal, which makes it really easy to go from the basic concepts of investing all the way through to more advanced concepts involving options trading. The truth is, though, while the activity around more active investing is probably more interesting to report on, the bulk of customers in Robinhood engage in what's typically called buy and hold behavior.

So they deposit money, they invest in stocks, they're doing buying. And there have been surveys showing that actually the majority of Robinhood customers are what they call 401(k) savers, long term investors. So options trading is a small fraction of the users that we're seeing.

ZACK GUZMAN: Yeah. And just kind of to hit on that, obviously, the critics point to the way that you guys have, you know, quote unquote "gameified" stock trading or options trading here with kind of the added effects that you have within your app. I'm not sure how much that might be true in terms of creating some of these moves-- if it's just a sleeker interface.

But to Akiko's point there, with all of this in the news, I did get the call from my younger brother talking about how do I trade options in the Robinhood app, and trying to get an explainer on all this stuff. So there are questions there, whereas a Fidelity trader who may not have traded options before has to wait to get approved and go through a process. So how much of that, in your mind, is it on your shoulders to make sure that those stopgaps are there to protect users? Or is that something that you say fully, look, we're not going to talk down to you. This one's on you?

VLAD TENEV: Well, I do think that we have been investing a lot in our Learn resources. It's important for us to educate users and provide them those tools. We've also made a ton of updates and progress to our options offering in the past year. We went through a lot of the changes to make our options offering clearer to customers, more safe, more intuitive, and more understandable in the past year.

So Robinhood is a company that is still early in our journey, and by no means are we done. There's ways we can improve our products. But I do think we make finance more accessible and approachable so we can help these first time investors become long term investors. And we have a product that just works, is informative, and intuitive.

And I think if that wasn't the case, less people would be investing. And that would fundamentally be a negative for society and our economy.

AKIKO FUJITA: And finally, Vlad, we have seen a real growth here during the pandemic. There's a number of theories that were floated around early on-- whether it was people putting their stimulus checks into the markets, whether it was because sports betting was sort of put aside. When you look at the growth opportunities, how much of this sticks beyond this current moment? You talked about a movement that you think is sort of building right now-- where does this go from here?

VLAD TENEV: It's easy to connect the dots going backwards. Going forwards, it's more difficult. Robinhood as a company, we're focused on the inputs-- the inputs being making sure our service is reliable, it's available to customers when they need us the most. We've been investing heavily in that as well as customer support.

And we also have been rolling out lots of different products in the past year. We've rolled out cash management, which has a debit card and a high yield savings product, fractional shares, recurring investments, and drip, which are products that help new users get started as well as existing customers, making it easier for them to become long term investors. So we're going to continue to listen to our customers, and improve the service, and offer new products for them.

AKIKO FUJITA: Well, we certainly hope to be able to continue the conversation and have you back on the show. Vlad Tenev, the co-founder and CEO of Robinhood, it's great to talk to you today.

VLAD TENEV: Absolutely. Thank you for having me.