Legendary investor and Berkshire Hathaway CEO Warren Buffett slammed stock-trading app Robinhood — saying it’s turning the market right into a on line casino.
Robinhood has “change into a really vital a part of the on line casino facet, the on line casino group, that has joined into the inventory market within the final yr or yr and a half,” Buffett stated at Berkshire Hathaway’s annual assembly on Saturday.
He added that there’s “nothing unlawful to it, there’s nothing immoral, however I don’t suppose you construct a society round folks doing it.”
Robinhood, which pioneered “free buying and selling,” payments itself as a democratizer of the inventory market. The app has made buying and selling extra accessible to youthful folks and people with much less money available by eliminating fee charges.
As a substitute, the app depends on a observe known as cost for order stream as its revenue engine. The observe, whereas frequent, has typically been criticized for its lack of transparency.
Market makers, comparable to Citadel Securities, pay Robinhood and different on-line brokers for the suitable to execute buyer trades. The dealer is then paid a small charge for the shares which might be routed, which might add as much as thousands and thousands when clients commerce actively.
“American firms have turned out to be a beautiful place for folks to place their cash and save however additionally they make terrific playing chips,” Buffett stated Saturday.
“Should you cater to these playing chips when folks have cash of their pocket for the primary time and also you inform them they’ll make 30 or 40 or 50 trades a day and also you’re not charging them any fee however you’re promoting their order stream or no matter…I hope we don’t have extra of it.”
Robinhood, which is eyeing an IPO later this yr, landed in regulators’ crosshairs earlier this yr when the app helped gasoline a GameStop inventory frenzy that noticed the inventory run up almost 400% at one level.
At a Congressional listening to in February, lawmakers pressed Robinhood CEO Vlad Tenev on the corporate’s relationship with market makers and its use of cost for order stream. A handful of lawmakers additionally alleged that Robinhood gamifies the inventory market.
In a December lawsuit, Massachusetts Secretary of State Invoice Galvin stated Robinhood used aggressive ways to draw inexperienced buyers. He accused the app of utilizing methods that handled buying and selling like a sport to lure younger, inexperienced clients, together with having confetti rain down for every commerce made on its app, a observe the app ditched in March.
Buffett’s long-time lieutenant Charlie Munger additionally took Robinhood to activity.
“I feel it’s simply God terrible that one thing like that introduced investments from civilized males and first rate residents,” Munger stated. “It’s deeply incorrect. We don’t wish to make our cash promoting issues which might be unhealthy for folks.”
In a assertion to CNBC, Robinhood defended its customers and stated it’s breaking down obstacles to buying and selling which have existed for generations.
“There may be an previous guard that doesn’t need common Individuals to have a seat on the Wall Road desk so they are going to resort to insults,” a Robinhood spokesperson informed CNBC.
“The longer term is numerous, extra educated and propelled by participating applied sciences which have the ability to equalize. Adversaries of this future and of change are often those that’ve loved plentiful privileges up to now and who don’t need these privileges disrupted. Their criticisms are unlucky however they show why Robinhood’s mission is in actual fact important.”
“The brand new technology of buyers aren’t a ‘on line casino group.’ They’re tearing down previous limitations to investing and taking management of their monetary futures. Robinhood is on the suitable aspect of historical past,” the spokesperson added.
A spokesperson additionally stated to Axios that “if the final yr has taught us something, it’s that individuals are uninterested in the Warren Buffetts and Charlie Mungers of the world appearing like they’re the one oracles of investing.”