Robinhood Fires Back at Warren Buffet for Linking Its Platform to Casino Gambling
Posted on: May 3, 2021, 01:20h.
Last updated on: May 3, 2021, 02:42h.
Robinhood, the commission-free trading platform that was involved in the 2021 GameStop short squeeze, has responded to criticism from billionaire Warren Buffett.
During Berkshire Hathaway’s annual meeting over the weekend, the 90-year-old “Oracle of Omaha” linked Robinhood’s users to casino gamblers.
[Robinhood] has become a very significant part of the casino aspect that has joined into the stock market in the last year or year and a half,” Buffett opined, adding that he doesn’t believe ordinary Americans are particularly good at picking stocks to invest.
Unlike other financial institutions at the time, Robinhood (started in 2013) was one of the first to offer customers commission-free trades. Buffett believes that allows investors to essentially gamble with their money by becoming inexperienced day traders.
“If you cater to those gambling chips when people have money in their pocket for the first time, and you tell them they can make 30 or 40 or 50 trades a day and you’re not charging commission… I hope we don’t have more of it,” the man worth more than $100 billion declared.
Robinhood’s founders realized early on in their Wall Street careers that it cost brokerages just fractions of a penny to execute trades, but typically charged clients $5 to $10 per trade. Robinhood launched with the business model of allowing customers to trade limitlessly for free.
The company predominantly generates its revenue by accruing interest on customers’ cash balances, selling trade volume information to high-frequency traders, and margin lending. In a blog post today, Robinhood Head of Public Policy Communications Jacqueline Ortiz Ramsay lambasted Buffett’s comments.
“If the last year has taught us anything, it is that people are tired of the Warren Buffetts of the world acting like they are the only oracles of investing,” Ramsay said. She cited the GameStop short squeeze that involved thousands of ordinary investors on Redditt grouping to run up the video gaming company’s stock price in order to hurt hedge funds.
Knock, knock. Who’s there? The old guard of investing who preferred it when investing wasn’t so easy. #OutOfTouch
— Robinhood (@RobinhoodApp) May 3, 2021
“It is clear that the elites benefited from a stock market that kept many families sidelined from participating while they amassed huge wealth from decades of investing — driving a deep wedge between the haves and have-nots. Suddenly, Robinhood and other online trading platforms have opened the doors of financial markets to everyday people, deeply unsettling the old guard, who will fight to keep things the same,” Ramsay added.
Investors Reject Gambling Linkage
The GameStop saga generated plenty of comments that day trading is no different than spinning a slot machine or plopping down $20 on red.
Investors big and small are treating the stock market like a casino,” argued Sen. Elizabeth Warren (D-Ma.). Rep. Alexandria Ocasio-Cortez (D-NY) said Wall Street has “a long history of treating our economy as a casino.”
But top Wall Street officials disagree.
“The markets are not a casino. We are running a market that provides opportunities for investors to come in, invest in the companies they believe in, they believe that are going to grow, and then share in that wealth creation,” declared Stacey Cunningham, president of the New York Stock Exchange.
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