Charlie Munger calls Robinhood a ‘gambling parlor’

Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s longtime enterprise associate, slammed commission-free buying and selling app Robinhood as being “beneath contempt” in a new interview.

“It’s a gambling parlor masquerading as a respectable business,” the 97-year-old investor told CNBC late Tuesday. “And it’s telling people they aren’t paying commissions when the commissions are simply disguised in the trading.”

“It’s basically a sleazy, disreputable operation. And the interesting thing about it is that some good people you would be glad to have marry into your family have backed it,” he added.

Critics of Robinhood have accused the corporate of gamifying investing. But the app has additionally made buying and selling extra accessible to youthful individuals and people with much less money readily available by eliminating fee charges.

Instead, it and different on-line brokerage companies rely on a practice called payment for order flow as a revenue engine. The observe, whereas widespread, has usually been criticized for its lack of transparency.

Market makers, equivalent to Citadel Securities, pay Robinhood and different on-line brokers for the suitable to execute buyer trades. The dealer is then paid a small payment for the shares which are routed, which may add as much as tens of millions when clients commerce actively.

Warren Buffet
Warren Buffet additionally took goal on the app through the phase.

Buffett added within the interview printed Tuesday that Robinhood is just not encouraging its customers to carry investments over lengthy durations of time.

“It’s not encouraging people to buy a very, very, very low-cost index fund and hold it for 50 years. I will guarantee you that you will not walk in there, get that advice,” Buffett mentioned.

It’s not the primary time Buffett’s taken aim at Robinhood.

He mentioned final month at Berkshire Hathaway’s annual assembly that the app’s “become a very significant part of the casino aspect, the casino group, that has joined into the stock market in the last year or year and a half.”

He added that there’s “nothing illegal to it, there’s nothing immoral, but I don’t think you build a society around people doing it.” 

Robinhood and different on-line brokerage companies depend on a observe known as cost for order move as a revenue engine.
SOPA Images/LightRocket through Getty Images

When reached for remark, Robinhood directed The Post to a May blog post responding to Buffett and Munger’s feedback made final month.

“If the last year has taught us anything, it is that people are tired of the Warren Buffetts and Charlie Mungers of the world acting like they are the only oracles of investing,” Jacqueline Ortiz Ramsay, a spokeswoman at Robinhood, wrote. “And at Robinhood, we’re not going to sit back while they disparage everyday people for taking control of their financial lives.”

Robinhood, which is eyeing an IPO later this 12 months, landed in regulators’ crosshairs earlier this 12 months when the app helped gas a GameStop inventory frenzy that noticed the inventory run up almost 400% at one level.

At a Congressional hearing in February, lawmakers pressed Robinhood CEO Vlad Tenev on the corporate’s relationship with market makers and its use of cost for order move. A handful of lawmakers additionally alleged that Robinhood gamifies the inventory market.

In a December lawsuit, Massachusetts Secretary of State Bill Galvin mentioned Robinhood used aggressive tactics to draw inexperienced traders. 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 each trade made on its app, a observe the app ditched in March.

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