Charlie Munger: Why Robinhood Is Bad For Investors

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A previous episode covered Charlie Munger’s criticism of Robinhood. “Round Two” reviews and discusses the investing lessons learned from Robinhood’s counter-response and Charlie Munger’s reply.

As Reported by The Wall Street Journal:
Legendary investor Charlie Munger continued a war of words Thursday with popular online brokerage Robinhood Markets Inc. over the way it and others have enabled and profited from the recent boom of individual investing.

“I hate this luring of people into engaging in speculative orgies,” Mr. Munger told The Wall Street Journal from his Los Angeles home. Robinhood “may call it investing, but that’s all bullshit.”

He added, “It’s really just wild speculation, like casino gambling or racetrack betting. There’s a long history of destructive capitalism, these trading orgies whooped up by the people who profit from them.”

Mr. Munger, 97 years old, is the vice chairman of Berkshire Hathaway Inc. and Warren Buffett’s longtime business partner. His comments Thursday echoed criticisms he lobbed at Robinhood the day before.

Those initial barbs from Mr. Munger prompted a sharp retort from the brokerage. Robinhood spokeswoman Jacqueline Ortiz Ramsay said Mr. Munger’s comment Wednesday about people having the mind-set of racetrack bettors was “disappointing and elitist.” Mr. Munger made the comment after saying: “It’s really stupid to have a culture which encourages as much gambling in stocks.”

“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,” she 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.”

After listening to Robinhood’s statement in full later Thursday, Mr. Munger said, “Everybody wants to protect their way of earning a living. That’s just human nature. That’s all I want to say about this.”

CMQ Insight: What is good for Robinhood’s business is bad for Robinhood customers. Academic research shows that individuals investors who trade more, do worse. Robinhood’s revenue growth depends on its customers trading, and trading often. More trading means more money for Robinhood. We know this because most of Robinhood’s revenue comes from Payment For Order Flow. Robinhood is not the only brokerage that makes money from payment for order flow, but Robinhood makes most of its money this way.
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