Berkshire Hathaway Vice President Charlie Munger issued a warning Wednesday that nothing is really free, at least when it comes to Robinhood and other brokerage apps trying to lure amateur investors with promises of commission-free trading on their platforms.
“Robinhood transactions are not free. When you pay for the order flow, you are probably charging your customers more and pretending to be free,” the 97-year-old investor said during the Daily Journal’s annual shareholders meeting, which was broadcast on I live for Yahoo Fiannce. . “It’s a very dishonorable and low-level way of talking. And no one should believe that Robinhood exchanges are free.”
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Munger blamed brokerage apps for enabling the recent trading frenzy in equities, including GameStop, by bringing together “a lot of people who are using liquid stock markets to play like they would at betting on racehorses.”
“The frenzy is fueled by the people who get commissions and other income from this new group of players,” Munger said. “And of course when things get extreme, you have things like that little squeeze.”
He also compared business activity to the historic South Sea bubble of 1720.
“You will remember when the first bubble came, which was the South Sea bubble in England in 1700. It created such chaos when it burst,” Munger said. “England allowed almost no public trading of securities and any business for decades thereafter. It just created the most ungodly mess.”
“So human greed and aggression from the running community create these bubbles from time to time. I think wise people just stay away, ”he added.
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Robinhood has been accused by critics of “gamifying” investment through its app after the platform began restricting stocks, including GameStop. The move was prompted by Reddit’s WallStreetBets, a speculative investment discussion forum that began buying the distressed retailer’s call options, causing the company’s stock to surge and hurt market short sellers.
Following the reaction from Main Street and Wall Street, Robinhood reversed its trade restrictions. However, it opened the company to a hearing with the House Financial Services Committee and a Justice Department investigation that is reportedly now investigating possible market manipulation.
“It’s really stupid to have a culture that encourages so much action play by people who have the mindset of racetrack gamblers,” Munger said. “And of course it is going to create problems, as it did.”
“And I have a very simple idea on the subject. I think I should try to make money in this world by selling other people things that are good for them,” Munger continued. “And if you’re selling them top-profit gambling services like a lot of these newer brokers that specialize in attracting players. I think it’s a dirty way to make money. And I think we’re crazy about Allow it. . “
A Robinhood spokesperson did not immediately respond to FOX Business’ request for comment.