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Berkshire Hathaway Vice Chairman Charlie Munger gave his views about Robinhood, zero-commission trading, and the GameStop frenzy on Wednesday.
Speaking at the Q&A portion of the annual meeting of the Daily Journal, a technology and publishing company where Munger is also executive chairman, the 97-year-old held little back, impugning the no-commission business model as “a dirty way to make money.”
When asked about the GameStop trading frenzy that unfolded in January, Munger said his views were simple: “I think you should try and make your money in this world by selling other people things that are good for them," he said. "If you're selling them gambling services where you rake [in] profits off the top like many of these new brokers who specialize in luring the gamblers in. I think it's a dirty way to make money. And I think that we're crazy to allow it."
The GameStop situation was the kind of thing that can happen “when you get a whole lot of people who are using liquid stock markets to gamble the way they would in betting on race horses," Munger said. "And the frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers,” he added, calling out brokers specifically.
Later, Munger was also asked about the most “egregious” excesses in the financial system, and named Robinhood by name, for the first time.
“Well it’s most egregious in the momentum trading by novice investors lured in by new types of brokerage operations like Robinhood,” he said. “And I think all of this activity is regrettable. I think civilization would be better without it.”
In a statement released Feb. 25, Robinhood struck back at Munger, calling his views “disappointing and elitist.”
"In one fell swoop an entire new generation of investors has been criticized and this commentary overlooks the cultural shift that is taking place in our nation today,” a Robinhood spokesperson wrote. “Robinhood was created to allow people who don’t have access to generational wealth or the resources that come with it to begin investing in the U.S. stock market.”
In another critique Munger pointed out that “Robinhood trades are not free,” saying that “when you pay for order flow you’re probably charging your customers more on pretending to be free.”
This is based on the theory that while market makers may give better prices relative to the exchanges, the practice costs overall.
“It’s a very dishonorable, low-grade way to talk and nobody should believe that Robinhood’s trades are free,” he added.
Robinhood defended its business model, underscoring the increased access it's given new retail investors. “To suggest that new investors have a ‘mindset of racetrack bettors’ is disappointing and elitist,” the statement continued. “It should be celebrated that we are seeing market investors begin to diversify, and that education and awareness about the values of investing are diffusing further into previously untapped generations."
Munger called out a “culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors,” something that Robinhood has repeatedly taken issue with. In testimony before Congress on Feb. 18, CEO Vlad Tenev said the company’s 13 million account holders are buy-and-hold investors for the most part, with the risky business that brought the company congressional scrutiny as a sideshow.
Read more from the Daily Journal Meeting: