Berkshire Hathaway Vice President Charlie Munger issued a warning on Wednesday that nothing is ever truly free – at least when it comes to Robinhood and other brokerage apps that attempt to lure amateur investors with promises of commission-free trading on their platforms.
“Robinhood trades are not free. When you pay for the order flow, you are probably charging your clients more and claiming to be free,” the 97-year-old investor told The Daily’s annual shareholders meeting. Journal, held broadcast live by Yahoo Fiannce. “This is a very dishonorable and insignificant way of speaking. And no one should believe that Robinhood trades are free.”
Munger blamed brokerage apps for allowing the recent stock trading frenzy, including GameStop by bringing together “a bunch of people who use liquid stock markets to bet like they would when betting on racehorses.”
“The frenzy is fueled by people receiving commissions and other income from this new group of players,” Munger said. “And of course when things get extreme you have things like that short press. “
He also compared commercial activity to the historic South Sea bubble of 1720.
“You will remember when the first bubble appeared, the South Sea Bubble in England in the 1700s. It took such a toll when it exploded,” Munger said. “England allowed virtually no public trading in securities and all businesses for decades thereafter. It just created the most ungodly mess.”
“So human greed and the aggressiveness of the brokerage community create these bubbles every now and then. I think the wise stay apart from them, ”he added.
Robinhood has been accused by critics of “playing” by investing through its app after the platform began restricting titles, including GameStop. The movement was motivated by Reddit WallStreetBets, a speculative investing discussion board that started buying the distressed retailer’s call options, sparking the company’s shares and hurting short sellers in the market.
Following reactions from Main Street and Wall Street, Robinhood rolled back its trade restrictions. However, he opened the company up to a hearing with the House Financial Services Committee and a Ministry of Justice investigation would now investigate a potential market manipulation.
“It’s really stupid to have a culture that encourages equity betting so much by people who have the mindset of racetrack punters,” said Munger. “And of course that’s going to create problems, as it has been.”
“And I have a very simple idea on the subject. I think you should try to make money in this world by selling other people things that are good for them,” Munger continued. “And if you sell them gambling services where you make a profit like a lot of these new player-luring brokers. I think that’s a nasty way to make money. And I think we do. are crazy to allow this. “
A Robinhood spokesperson hit back at Munger, calling his comments “disappointing and elitist.”
“Suddenly, a whole new generation of investors has been criticized and this comment overlooks the cultural change that is taking place in our country today. Robinhood was created to empower people who do not have access to the generational wealth or the resources that flow from it. with it to start investing in the US stock market, “the company told FOX Business in a statement.” To suggest that new investors have a ‘racetrack bettor mentality’ is disappointing and elitist. It is to be applauded that we are seeing market investors begin to diversify and education and awareness of the values of investing is spreading further into the previously untapped generations. “
According to recent testimony from Robinhood co-founder Vlad Tenev, the platform has more than 13 million users.