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Protocol | Fintech

Why the stock market went crazy — and one way to fix it

Leif Abraham, the co-CEO of Public, joins the Source Code podcast to talk about what's happening with GameStop, how fintech companies should be helping investors and what "finance social" looks like.

Public app

Public's app tries to make investing simpler. And a little less crazy.

Image: Public

Leif Abraham wants to be very clear that most of this week's GameStop-stock insanity was not happening on his investing platform. (Maybe a little was, but not much.) While Robinhood was climbing the app store charts this week and prices were going out of control, things were a little quieter on Public, where Abraham is co-CEO. And he thinks that's a good thing: He's trying to build a company, a product and a community that are all focused on long-term goals rather than short-term gains.

At the same time, Abraham said on this week's Source Code podcast, what's happening with GameStop — and AMC and BlackBerry and Nokia and a host of other stocks juiced by retail investors — does signal a shift in how the stock market works. It's no longer the exclusive property of suspenders-wearing bankers and vest-wearing hedge fund bros. The "retail investor," as they're often called, is a force to be reckoned with.

Public's job, as Abraham sees it, is to figure out how to help those new investors be successful measured in years, not hours or days. One way the company hopes to pull that off is by baking social features into practically every part of the app. "If you want to build true education around the stock market," he said, "no editorial department on this planet can make it happen. Building a large community around the stock market is, I think, maybe the only way to really solve that issue."

In our interview, he explained why you should care which stocks Tony Hawk owns, how to design for both fun and responsible decisions, and why it's so important — and so hard — to get more people trading.

The following excerpts from our interview have been edited for length and clarity.

We have to start with GameStop, right? And it's not just GameStop, it's AMC and BlackBerry, too, but there's this thing happening in public, which I feel like has not happened in public before in investing. What do you make of what's happened in the markets the last few days?

Retail investing volume has been going from about 10% to 20% over the last few years. And that obviously has to do with just more people having access to the stock market. I think that's obviously driven a lot of interest. The other thing that has happened, I think, is just the force something like Reddit has in terms of people being able to rally behind something way quicker than they have ever been able to in the history of this planet.

I still think that it's mostly driven by people looking for a quick gain. There's obviously an aspect of David versus Goliath, the sense that the crowd can suddenly take down a hedge fund, which is a power dynamics shift. It's pretty insane, if you think about it. But at the end of the day, I still believe that it's also driven by the general desire of finding ways for quick gains.

I think, especially if you look at some of the communities that have been sprung up around the stock market on Reddit and co., you will definitely see that the culture of those lends itself to more short-term thinking, very heavily speculative. What happened to GameStop has nothing to do with the fundamentals of that company. It's pure speculation, and it's really trying to play a game against the big guys, but also with the obvious goal to make some gains out of it.

Within those communities, it's often a little bit closer to gambling culture than it is to investing culture at the end of the day. And it's also a trend you've seen after March: A lot of people started adding to the stock market after seeing a drop in the market and seeing the opportunity to now get started. And so I think that kind of has, you know, accelerated that specifically.

On the one hand, there are all of these obvious warning signs about why what's happening is not a good idea, to your point about company fundamentals. But on the other hand, there is this very tech utopian, like, Power to the People thing happening. There is something … magical about the fact that a bunch of insane people on Reddit can literally decide what a stock is worth, if they all decide to do it.

It's kind of like what companies like Public have been talking about for a long time: this idea that investing shouldn't just be in the hands of these people who work behind the scenes at banks, the wizard behind the curtain. This should be available to more people. The truth is just that when you make things available to all people, some people will do insane things.

There's obviously also a lot of risk to it, because you have a few people that truly understand it. The things that are happening with GameStop is like pretty sophisticated stuff, right? So this is not something that someone who's just brand new into the stock market can come up with and really figure out.

I do think that the Twitter and the Reddit hype, and then having literally famous business people tweet about it as well, just creates a lot of risk for people that have just been pulled into it because they just see something going up. And then they see something going up, they put their own money into it with the hope to get some gain at the end of that slope. And there's obviously a lot of risk there.

There will be collateral damage in the end, and likely that collateral damage will not be the people who are more sophisticated, who are likely the ones who started it. And I think that is obviously something to be very mindful of. And I feel that's where I think we have to watch out with celebrating too much, right? I agree that there is a certain beauty to see the power the people can have when they rally together. But on the other hand, in a democracy, the healthiness of democracy is driven by the education of citizens, right? I think that plays into this as well. And so you will have a lot of collateral damage that happens with it, which I'm personally concerned about.

As you think about that from a company perspective, what have you been doing this week? You're in the position of wanting to give people access, and these things are inherently social, so I'm curious what's been happening in and around your platform. And what do you think your job is here?

When we built Public, from the very beginning we saw it as a chance to build a new culture on the stock market from scratch. And so if you look historically at the community that has grown up around the stock market, it has been more the day-trader type of crowd: more speculative, more short-term, more statistical analysis than long-term future vision of companies, that kind of thing. And so I believe those communities were also just something that didn't necessarily have a certain true mainstream appeal, and therefore weren't necessarily very inclusive for most people, because they're not necessarily very welcoming of people who are very new to investing.

So we took the approach to actively not start there when we acquire customers, but to basically start more with creative communities, female business communities, etc. And that's who the first users of Public were. So the culture on Public and the community is very different than what you would expect when you think of stock trading and social media, right?

Right, because those things typically thrive on chaos, right? And the point of it is the speed and the energy.

Yeah, and it's about how much money did you make yesterday, not, you know, how much money did you make the last five years. On Public, you know, it's 40% women on the app, it's 90% people who are first-time investors. We look at ourselves really as something where we use social as a mechanism to scale education around the stock market, and to truly help people build financial literacy. And so the community is really much more about learning from the experiences of others, and sharing those general experiences, versus just speculating on the market and showing off quick gains. And that's just a very different culture.

That also comes from just the way we build features, for example. So we haven't rolled out margin loans, we haven't rolled out options trading. Instead, we've done things like a long-term portfolio, the ability to actually categorize your portfolio into short-term and long-term. And if you put your stocks into long-term, we actually tell you how many days away are you from long-term capital gains tax before you sell it, and you have to kind of confirm before you can sell the stuff.

Or we launch things like safety labels. For example, GameStop received a safety level a few days ago from us. If the stock either falls into a sense where the SEC would deem it more risky, they actually have a safety label in the app so contextually in that moment, when you buy them, we give you quick context before you buy them on that potential higher risk. And you have to slide to confirm to actually then buy.

We believe that if you're building something where it's 90% first-time investors, it comes with a certain responsibility to build the experience for them, and try to serve them with contextual information when you can. They should still make their own decisions, right? We don't want to play God and define what they're going to buy or something, but we believe there's a certain responsibility that comes with it.

Tell me how social fits into all of this. I think finance social is historically mostly about day trading, and all the chaos of, you know, trying to screw over short sellers. But even going back to the beginning of Public, what was the what was the instinct behind why social felt like it should be part of this?

The stock market is massive and vast and deep. And so, if you want to build true education around the stock market, no editorial department on this planet can make it happen. I think social, and building a large community around the stock market, is maybe the only way you can really solve that issue. Because number one, people can curate the experience on the stock market: I can follow certain people in a certain manner, I can follow people or break down the stock market in a certain way. I can follow people that are very highly specialized in a very specific sector or trend or very specific company.

And you can include more different voices in a discussion other than just financial analysts. If you are deep in the future of fitness and you are interested in Peloton, maybe you want to talk also to a Peloton instructor, and not just to the person that has analyzed the last earnings report. That type of thinking is likely best fostered within a large community like that.

You've got me thinking about UI. As we've seen, it's really easy to incentivize people to do just about anything with your design. As you think about sort of what the product is supposed to look and feel like, what is your design and user experience process, as you try to balance that stuff?

We're looking really at the long term with the users we acquire. Specifically the space we're in right now, it's obviously — sorry to say this very cliche word — very user-centric. It's very much driven by what we believe is the most simplest, cleanest way.

But even giving users what they want can be complicated in this space. Because sometimes what users want is chaos! They want things to feel fun and exciting and weird and new. Listening to users seems dangerous in this case.

I don't think when you say user-centric, it means you're just building what people ask for. I think if you're just building what people are asking for, it means you have zero vision for your company. I think it's very easy to feel like you're making the right decision if you just A/B-test the shit out of it.

We think we're a pretty vision-strong company. That is what is driving our design and our decision roadmap. There's obviously an aspect where you have to listen to your users, and that falls into bug reports, that falls into certain other smaller features for sure. But it won't necessarily change the course of the ship.

That would mean then that you'd have to have a really clear core set of first principles and values. Things that are on the white board, like, "these are the inviolable things that we care about most as a company that drives everything we do." What are those things for you, as you think about the user experience?

One thing we're always saying internally, and it's very high level and vague, is "we're playing a different game." If you look at fintech companies, and any fintech apps out there, I think a lot of these are just leading with the left brain. And so they're leading with, what's the APY on your savings accounts? What are the benefits on your debit card? What's the next feature you can launch? They're just leading with these utilitarian benefits.

We believe that, especially in investing, people invest with their heart as much as with their brain. It's not just purely rational. And that is really driving a lot of what we're doing. So we're building a people-first experience. And with that, we're building something understanding that people are driven by their values, their personal interests and their backgrounds.

We had moments, like during the Black Lives Matter protests, when some Black women on the app started buying four S&P 500, companies that are run by Black CEOs, in order to highlight the fact that there are only four. And it's stuff like that, where you recognize that specifically in a social setting, and specifically when people are new to the stock market, that they will make the first investment decisions based on their personal values, based on the things that they like and enjoy. And so we're focusing heavily on understanding that human beings are highly emotional animals. And I think that drives a lot of the decisions we make.

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