The future of stock market investment is not the stock market.
On Monday, Robinhood (Hood) launched a forecast market, which announced that users can trade the results of the event.
Readers may remember last month. The company tried to start betting on the Super Bowl, but later retracted its plans.
A month later, the company appears to have an answer to regulators.
“The forecast market hub and corresponding contracts will initially be available throughout the US through Kalshiex LLC, a CFTC regulatory exchange,” the company said in a release Monday.
“We have been in close contact with CFTC over the past few weeks and look forward to continuing to work with them to promote innovation in the futures, derivatives and crypto market.”
So, as regulatory machines are hampered and the company finds better partners in the latest initiatives outside of stock, Robinhood appears to be showing that the future of stock market investment is indeed a sports betting.
As Bloomberg’s Matt Levine wrote back in February:
There are two basic mental models that you can use when investing in the stock market. No one knows anything, everyone knows everything.
Both are taken to extremes and form solid support for doing what most research suggests most people should do with most investments. Park them in low-cost index funds and do something else with time and talent.
For professional investors, both of these models offer many reasons to try and beat the market. Certainly not everyone can know everything, someone has to know something. Why not us?
But for both retail investors and the companies that serve them, the regular, reinforced message that the best way to do something with your money is to see these relationships fall in both directions in the end.
Companies cannot acquire users through years of omission or acquire users to retain customers. And in any business, regardless of whether you “expect” your product, if you have no reason to remember that they are customers, then you should do so.
All of these help outline the appeal of the forecast market as a kind of middle ground.
They resolve quickly. They are individual. Also, leverage can be applied to any bet in a creative way, but these derivatives don’t have any options (at least yet).
In a paper claiming the value of providing forecast market contracts, Robinhood writes, “The combination of risk mitigation, information aggregation, speculation and learning possibilities makes forecast markets a valuable economic and information tool for businesses and individuals.”
surely.
And speaking of what everyone knows, the modern US economy is highly financial, but most participants are unable to hedge risk. (As a W-2 employee with a mortgage and a 401(k), I have actually been a long-livering leverage in the local housing market, the online media industry and the US stock market.)
SO: Does this new product change the risk profile of the majority of Robinhood users? Is it possible that many of them are subject to the same leverage as the author of this post? Probably not.
But what signalles is that the role of the stock market in the average person’s efforts to improve their financial position and to lift risk of financial assets is likely to decline over time.
Of course, things like “democratization” and venture capital such as private equity and venture capital fit this bucket.
And placing a YES/NO bet on all 67 games to be played in the NCAA Tournament doesn’t exactly scream “take a risk.”
The stock market is often discussed as a solved problem with three true outcomes, just like baseball, but if the known correct action buys a basket and does nothing, it needs to somehow alleviate the bias of both business strategists and humanity.
At least sports are fun.
