RobinHood Retaliation to Warren Buffet's Comparison of the Platform to Gambling

Earlier this month, Warren Buffet, famed investor, attended Berkshire Hathaway’s annual meeting and voiced some less-than-appreciated sentiments about Robinhood Trading Platform. The 90-year-old investor and billionaire has become a trusted source for many budding investors and is referred to as the Oracle of Omaha. However, his comments relating to Robinhood have led to significant backlash and he has even been called out for it by the executives of the company that owns Robinhood.

Buffet’s Opinion

Not that anyone asked but Warren Buffet used the platform opportunity by the Berkshire Hathaway’s meeting to make a comparison between Robinhood’s investors and casino gamblers. While the Oracle of Omaha might feel justified in his claims, he has faced significant backlash from Robinhood and its users alike. According to Buffet’s statement, Robinhood has played a significant role in the casino-like aspect that has made its entrance into the stock market over the last 18 months. He went on to share that he does not believe that average Americans are capable of picking good stocks to invest in as they lack prior experience and know-how.

Robinhood, which was launched in 2013, was one of the very first financial institutions to offer average Americans commission-free trades. Buffer believes that this aspect allows inexperienced investors to gamble away their money by becoming day traders with no understanding of the stock market and how it all works. Buffet emphasised his comparison between the platform and gambling by sharing that he hopes that the market does not see more of the services that Robinhood offers. According to Buffet, the platform caters to gambling chips when people have funds for the first time and allows them to make between 30 and 50 commission-free trades a day is encouraging reckless investments that could do more harm than good.

Robinhood’s Response to the Claims

The founders of Robinhood realised very early on in their trading careers that it costs investment brokerages just a fraction of a penny to execute customers’ trades. However, these brokerages then charged their clients between $5 and $10 for every trade. As such, Robinhood’s founders decided to launch a platform with a business model that allows its users to trade limitlessly with no charges involved.

Robinhood generates revenue by collecting the accruing interest on their users’ cash balances, the sale of trade volume information to higher frequency traders and the lending of margins.

Jacqueline Ortiz Ramsay, Robinhood’s Head of Public Policy Communications, took to the internet to comment on Buffer’s statement. Ramsay stated that in the last year, Robinhood has learned that people have grown tired of the Warren Buffets in the world who believe that they are the only ones who understand investing and are, therefore, allowed to say whatever they want. She went on to cite this year’s GameStop incident that involved thousands of average Americans, or ordinary investors, on the Reddit grouping. The group collectively ran up the company’s stock price to cause financial strain for hedge funds. Ramsay shared that the statement from Warren serves as proof that the elites of investing have benefitted from the stock market for decades while side-lining millions of American families. This drove an even greater wedge between the rich and the poor. The introduction of Robinhood, and other such platforms, is deeply upsetting to the traditional investors, or old guard, who will fight tooth and nail to keep things the same so they can keep the wealth all to themselves.

Investors Get Involved

While the GameStop short squeeze resulted in many commenting on the similarity between day trading and casino-style gambling, it is not just this form of trading that is under attack. Warren Buffet’s are not the first comments to emerge that make a comparison between the stock market, investing and casino gambling. Senator Elizabeth Warren stated that both big and small investors treat the stock market as a casino and Wall Street has the longest history of treating the American economy as a legitimate form of gambling. However, executives from Wall Street disagree. Stacey Cunningham, President of the New York Stock Exchange, has shared that the markets are not a casino. The NYSE runs a market that provides an opportunity for investors to place money on the company that they believe will be successful and share in the wealth once it takes off.