Warren Buffett at the Berkshire Hathaway Annual Meeting in Los Angeles, California. May 1, 2021.
Legendary investor Warren Buffett believes the millennial stock trading app Robinhood contributes to and benefits from speculative, casino-like trading activity on the stock market.
Robinhood has “become a very important part of the casino community, the casino group that has joined the stock market for the past year and a half,” Buffett said at the Berkshire Hathaway annual meeting on Saturday.
The “Oracle of Omaha” also said it looks forward to reading Robinhood’s pre-IPO SEC S-1 filing as the company nears its public debut, expected in the first half of 2021. The company that pioneered zero commission trading is seen as the main gateway for young investors to gain access to the markets.
“American companies have proven to be a wonderful place for people to put their money in and save, but they also make great gaming chips,” said Buffett. “If you take care of those gambling chips when people have their first money in their pockets and tell them they can make 30, 40 or 50 trades a day and you don’t charge them commission, but sell your order flow or whatever always … I hope we don’t have any more of it. “
Robinhood – whose mission is to “democratize investing” – is often criticized for its gamification of investing. The Silicon Valley startup found itself in the middle of a firestorm in January amid brief pressure on GameStop, partly fueled by Reddit-fueled retail investors. The app has taken steps to dissipate that reputation and eliminate the confetti animation when investors make their first trade.
Buffett said he was unhappy that short-term stock option activity in Apple’s stocks rose sharply. He said he expected much of that activity to come through Robinhood.
Robinhood’s user growth has been explosive in 2020 and 2021. Millions of new investors jumped into the market during the pandemic, and more were added in 2021. The Robinhood stock trading app added nearly 6 million customers in the first two months of the year. according to JMP Securities estimates.
“There’s nothing illegal about it, there’s nothing immoral, but I don’t think you’d build a society around the people who do it,” Buffett said.
“To what extent a very wealthy society can reward people who now know how to essentially harness the gambling instincts of not just the American public but the global public is not the most admirable part of that achievement,” Buffett said.
Berkshire Hathaway vice chairman Charlie Munger was less gentle with his description of Robinhood.
“I think it’s just terrible that something like this has attracted investment from civilized men and decent citizens,” Munger said. “It’s deeply wrong. We don’t want to make our money selling things that are bad for people,” added Buffett’s right-hand man.
Robinhood defended its mission and the future of retail investing after Buffett’s comments.
“There’s an old guard who doesn’t want average Americans to have a seat at the Wall Street table to resort to insults,” a Robinhood spokesman told CNBC. “The future is diverse, better educated, and driven by the use of technology that has the ability to compensate. Adversaries to this future and change are usually those who have enjoyed abundant privileges in the past and do not want those privileges to be disrupted Criticism is unfortunate, but it proves why Robinhood’s mission is indeed critical. “
“The new generation of investors are not a ‘casino group’. They are breaking down old barriers to investing and taking control of their financial futures. Robinhood is on the right side of history,” added the spokesman.
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