I would qualify this by saying that I am a satisfied user of Freetrade, and support the mission to democratise investing.
Nevertheless, I have become increasingly concerned at the trading activity which the platform is implicitly encouraging. Long-term lurking on the forums has only affirmed my concerns are not misplaced. The fact that SPACs are among the most requested stocks is telling indeed.
From what I understood Freetrade’s aim was to enable young investors and those with small accounts to invest soundly for the long-term. This is a commendable aim, and brings some much needed disruption to the UK discount broker market.
However, I would ask what purpose does the current Discover tab serve in meeting this aim? It seems disingenuous to contend that profiling select stocks or categories does not foster trading activity on these names; even if not an explicit aim, it implicitly encourages it. A regular reader to these forums, would be hard pushed to deny the consequence.
This morning my discover tab profiled stocks in the below categories:
- 2020 IPOs
- Green Energy
- Female CEOs
- Crypto Miners
As any investor knows, realised future returns come only from the price paid for future profits. Even the frothiest of sectors or stocks cannot defy basic arithmetic and asset pricing; and technological innovation is no guide to future profitability and price performance, nor is the relative hype around a SPAC target.
Betting on innovation and technological transformation is a notoriously poor investment strategy, due to the intersection of sector specific risk and market risk, which displace the discount rate previously applied.
It is well documented that >80% IPOs underperform their relevant index in the first 18-months of trading. I also don’t believe there is a clearly evidenced connection between the gender of a CEO and the performance of the company.
Considering all of this, I do not see how Freetrade can meet with its mission statement, whilst centring the app around a page which is implicitly toxic to its users long-term financial well being.
This is an issue I have raised before with Freetrade staff privately, although I have never received an clear answer on why the Discover tab is populated as it is. In fairness to these staff, its not their area of operations so I would not expect them to have a good answer. However, I am hopeful that perhaps someone out there can enlighten me on the thinking behind this page.
Disclosure: I am a Plus user with a modest sum on the platform (~£25k), and this combined with some functionality issues, constitutes my sole reservations for not placing further assets with FT.