Although we still have eight and a half months before we close the curtain on 2021, there's a very good chance this year is remembered as the time when retail investors made their presence known on Wall Street.

Most folks would associate the retail movement to the Reddit frenzy that began three months ago. However, retail investors began edging into the market long before January. As volatility heightened in 2020, young and/or novice investors flocked to the market. We know this because online investing app Robinhood added 3 million new users last year. The average age of Robinhood's user base is only 31.

In one respect, it's a fantastic thing to see young people putting their money to work in one of the world's top wealth creators. The earlier people start investing, the better chance they have of becoming financially independent.

On the other hand, Robinhood investors have a history of chasing penny stocks, momentum plays, or businesses that aren't fundamentally sound. In other words they're after the quick buck and throwing darts to get it.

A person looking at a rising green stock chart on their smartphone.

Image source: Getty Images.

Apple has long been the most held stock on Robinhood

But among these dart throws has been one constant for virtually the entirety of the past eight months: Apple (AAPL 0.86%). With the exception of about four or five days over the past eight months, technology kingpin Apple has been the most-held stock on Robinhood's leaderboard (a regularly updated ranking of the 100 most-held stocks on the platform).

This makes sense for a number of reasons. To begin with, young investors like to invest in companies they support or are familiar with. Apple's iPhone is the most-popular smartphone in the United States, and is likely to remain that way after introducing 5G-capable devices late last year. The company's branding has been hitting home with consumers for more than a decade, and the long lines surrounding its stores during new product debuts are a testament to this fact.

Apple is also a cash cow. It's the largest publicly traded company in the U.S. by market cap, has generated almost $89 billion in operating cash flow over the trailing 12-month period (based on its quarterly reports), and pays out one of the biggest dividends in the world, by nominal dollar value.

Lastly, it's a company that's in transition. Apple CEO Tim Cook is overseeing the steady move from being a product-oriented company to one that promotes platforms and services. By focusing on higher-margin services, Apple should bring in more consistent revenue on a quarter-to-quarter basis, and margins should tick even higher.

In short, Apple has always been a logical choice as the most-owned stock on Robinhood.

A Tesla Model S plugged into a charging outlet.

A Tesla Model S plugged in for charging. Image source: Tesla.

Move aside, Apple: There's a new No. 1

But this past week, the tech giant was dethroned by a mammoth momentum stock.

As some of you might recall, movie theater chain AMC Entertainment (AMC -5.36%) took the top spot on Robinhood from Apple for a period of two days following its short squeeze in late January. Though the buzz surrounding AMC has remained robust from retail investors, it wasn't able to hang onto the No. 1 spot for long. For the past two months, it's consistently been the third or fourth most-held Robinhood stock, which is frighteningly strong conviction for a company with serious fundamental and balance sheet concerns.

It also wasn't Ford Motor (F -3.30%) or Sundial Growers that knocked Apple off of its perch. Ford held the top spot prior to Apple's ascension, but hasn't been able to move higher than No. 5 on the leaderboard in months. Meanwhile, Canadian marijuana stock Sundial Growers has traded places with AMC for the No. 3 and No. 4 spot on numerous occasions, but hasn't ventured higher.

The company that gave Apple the heave-ho, which has been living in its shadow on the Robinhood leaderboard for some time now, is electric vehicle (EVs) manufacturer Tesla Motors (TSLA -2.03%).

Why Tesla? On a broad scale, the simple answer is that young people are more likely to care about climate change than older Americans. With Tesla's focus predominantly on building EVs that'll reduce the carbon footprint associated with transportation, it's a concept young investors can get behind. There's pretty much not an analyst on Wall Street who doesn't see EVs or autonomous vehicles (AV) eventually coming to dominate the auto space.

On a more specific level, Robinhood investors are likely pumped following Tesla's first-quarter production and deliveries announcement. In total, the company delivered 184,800 vehicles in Q1 2021, which was well ahead of Wall Street's expectation, and demonstrates just how effectively the company is expanding its production capacity. 

A hand reaching for a neat stack of one hundred dollar bills used as bait in a mouse trap.

Image source: Getty Images.

Caveat emptor, Robinhood investors

While it's tough to argue against Tesla's rising production numbers or its 1,120% gain over the trailing three-year period, my belief is Robinhood investors are playing a risky game by chasing momentum in Tesla's stock.

For starters, Tesla is far from the only auto stock in town when it comes to EV production. It's been able to maintain clear competitive advantages in terms of battery capacity, power, and range thus far, but is unlikely to see these advantages hold firm over the long run as traditional automakers with decades -- or more than a century of history, in some cases -- begin investing aggressively in EV and autonomous technology. General Motors (GM -1.73%) and Ford alone are throwing $27 billion and $29 billion, respectively, at EV and AV technology by mid-decade. GM plans to introduce 30 new EVs globally by 2025, with Ford also expected to offer 30 of its own EVs by the middle of the decade.

Another problem that can't be swept under the rug with the Tesla buy thesis is its income statements. Even though it reported its first full-year profit in 2020, it was only profitable because it sold regulatory emission credits to other automakers. In all four quarters of 2020, Tesla would have reported a generally accepted accounting principles (GAAP) loss without its regulatory credits. When a $703 billion company hasn't even shown the ability to generate a GAAP profit from selling its core product, warning flags should be going off in your head. 

The final worry is that all next-big-thing investment bubbles eventually burst. For more than a quarter of a century, we've watched as the internet, genomics, business-to-business commerce, marijuana, 3D-printing, blockchain, and a host of other major trends all soared and eventually burst. This doesn't mean we didn't see winners emerge from these next-big-thing trends; but it does show that investor expectations for new technology pretty much always exceeds reality.

Long story short, caveat emptor, Robinhood investors.