Can Robinhood Still Fulfill Its Mission to Democratize Finance?

There has been a lot of attention generated by the recent volatility around "meme stocks" like AMC Entertainment Holdings and GameStop. Some of the biggest headlines were the result of Robinhood's decision to limit or restrict trading in some of these short-squeeze candidates, resulting in outrage from some users. Robinhood responded earlier this month by airing an ad during the big game.

On this clip from Motley Fool Live, recorded on Feb. 8, "The Wrap" host Jason Hall, Fool analyst Auri Hughes, and Fool.com contributor Danny Vena discuss the challenges the company faces and whether it can still fulfill its mission to "democratize finance for all."

Jason Hall: How about James' question about Robinhood with their big game ad, any thoughts on that?

Auri Hughes: I didn't see this commercial. Did anyone see the Robinhood commercial? I didn't see that one.

Hall: It was milk toast. It was really milk toast.

Danny Vena: It was essentially Robinhood saying, "Hey, you know, this is your life and this is how you can integrate us into it."

Hall: Everybody's in it. [inaudible]

Vena: Because we're all in it together.

Hughes: I think I like the approach, because I do believe investing should be democratized and I think that is somewhat of the mission of The Motley Fool as from Tom and Dave [Gardner]. But I think when your platform is encouraging people to trade and do things like that, whether intentionally or unintentionally, I think we need to step back because the real wealth is built by compounding, and waiting, and essentially anyone that invests knows that. I don't know, but I like the sentiment, at least.

Hall: It's the law of unintended consequences. I'm sure is part of their process of building out this whole idea was honestly was using the trading flow, that volume because there's big funds out there that'll buy that volume to run it through their platform, so they can take a little shave off of every transaction and they can make money. Then Robinhood said, the founder said, "Let's use that and we can make trading free, and we can make a ton of money while we're doing it." All of those things are great. But then the law of unintended consequences; to make money, you have to encourage people to trade more because it's entirely their entire business model's tied to driving more revenue. So what do you do?

Hughes: Activity, yeah.

Hall: Exactly, and you gamify it. You build a platform that gives us that little serotonin hit, that gives us those little happy chemicals and get your brain to reward you every time you do what rewards Robinhood, not what rewards you. It's the biggest thing. I want to stress this. I want to stress this, guys. Bottom-line is that, go ahead, Auri.

Hughes: I think when you make a buy, confetti goes off in the app. [LAUGHTER] It shows you like confetti or fireworks whenever you buy stock.

Hall: It's so bizarre. This is the thing that I really wanted to stress is that the wiring of our brains, the way that we have evolved to work when it comes to risks and rewards is very much converse to the way you can be successful as a long-term investor. Because the pain of loss hurts more than the pleasure of gain feels good. You can have a stock double and that good feeling doesn't feel good as much as losing 10% hurts. Even though 10% loss and you hold through the 10%, it's a non-event. That's not how our brands work. They're gamifying this whole thing, so it [LAUGHTER] rewards. I've said enough. I'm sorry, guys, I'm rambling at this point.