Robinhood fired back at Berkshire Hathaway Vice Chairman Charlie Munger, who earlier this week said the free trading app was having a “regrettable” impact on investors.
The longtime business partner of Warren Buffett on Wednesday addressed the running controversy over Robinhood and similar applications, noting dangers from the allure of easy, free trading.
“No one should believe Robinhood trades are free,” Munger, 97, said. “The frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers.”
He added that the app has created “a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors. … It’s a dirty way of making money.”
A statement Thursday from Robinhood spokeswoman Jacqueline Ortiz-Ramsay took sharp exception to the remarks.
“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,” Ortiz-Ramsay said. “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. To suggest that new investors have a ‘mindset of racetrack bettors’ is disappointing and elitist.”
Both commentaries referred to a recent groundswell among retail investors who are combining the convenience and free trades of Robinhood with viral platforms provided by social media, particularly the Reddit message boards.
In the most glaring example, investors have piled into GameStop, a heavily shorted stock that has seen its price explode higher in recent weeks amid a surge in Robinhood-based trades that created a massive short squeeze.
Though the speculation has created intense market volatility, Robinhood asserted that its product is providing opportunity.
“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,” Ortiz-Ramsay said.
Munger isn’t the only Robinhood critic – others have accused it of turning stock trading into a dangerous game, from which it benefits through payment for order flow, or the money that market makers give the company for trading volume.
“No one should believe Robinhood trades are free,” Munger said. “The frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers.”
Source: Investing - cnbc.com