Warren Buffet, one of the world’s most respected investors and often referred to as the greatest, has hit out at the new generation of cheap trading apps like Robinhood. He compared current stock market trends, heavily influenced by a new army of retail investors using such apps, to casinos. The apps themselves he says, “take advantage of society’s gambling instincts”.
The scathing criticism of commission-free trading apps was delivered at the annual meeting of Buffet’s investment vehicle Berkshire Hathaway, itself one of the biggest companies in the world, which took place over the weekend. The 90-year-old Sage of Omaha, as Buffet is known, still the Berkshire chairman, told shareholders:
“We’ve had a lot of people in the casino in the last year. Nobody tells you when the clock’s going to strike 12 and it all turns to pumpkins and mice.”
Berkeley vice-chairman Charlie Munger struck a similar tone to his boss by branding apps like Robinhood “God-awful”, adding:
“I don’t mind the poor fish that gamble. I don’t like the professionals that take the suckers.”
Mr Munger was even more damning of the popular cryptocurrency bitcoin, of which he has long been a vocal critic. He didn’t hold back, describing it as “disgusting and contrary to the interests of civilisation”, adding for good measure that he doesn’t “welcome a currency that’s so useful to kidnappers and extortionists and so forth”.
Buffet has built a reputation as a consistently successful investor over six decades. He has run Berkshire Hathaway since 1965, building it into an investment group worth $600 million. As such his warnings, which he is not alone in making, carry weight.
He made particular reference to the growing tidal wave of blank cheque SPAC listings over the past year, describing them as among the most obvious symptoms of the “gambling impulses”, he sees as having taken hold of financial makets. He also laid the blame of why Berkshire’s rate of acquisitions has dropped drastically over 2020 and 2021. The investment group’s investors were warned he doesn’t expect the company to have “much luck”, in its pursuit of takeover deals it considers offer value while the packs of SPACs prepared to pay more hunt takeover targets.
The company is sitting on a huge $145.4 billion cash pile but is keeping its powder dry until a deal that meets its value criteria presents itself, refusing to enter bidding wars pushing valuations up. SPACs, special purpose acquisitioin companies, are shell companies that raise money for acquisitions.
Many have recently raised billions on the stock market despite investors not knowing what company their money will eventually be used to buy. That’s led some prominent critics of the trend to refer to SPACs as “Kinder Egg investments”.
Munger again followed Buffet by pressing the same point even more vehemently, labelling the rise in SPACs a “moral failing”. He went on to say:
“I think we have a lot to be ashamed of [in] current conditions. It’s shameful what’s going on.”
Robinhood hit back by accussing the “old guard” of stooping to insults, insisting it “is on the right side of history”.
While waiting patiently on acquisition opportunities, Berkshire has used some of its cash pile to keep investors sated by a $6.6 billion stock buyback. And after falling to a $49.7 billion loss over the same period in 2020, the company was this time able to report an $11.7 billion profit and operating earnings which rose from $5.87 billion to $7.02 billion.
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