Warren Buffett and Charlie Munger are known for investing in long-term growth and stable businesses. At the annual Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) shareholder meeting, the duo criticized the state of the market and singled out one company that helped boost gambling on the stock market.
What Happened: Munger called Robinhood Markets HOOD a good idea that was “grossly overdone.”
Munger said Robinhood had a “disgusting” business model that includes kickbacks from companies in the process of selling order flow.
“It’s unraveling. God is getting just.”
Buffett told shareholders he recalled Robinhood management selling shares after the IPO.
“They’ve gotten a lot of money from it, they were big sellers,” Buffett said.
Munger also criticized the role commission free trading and new brokers like Robinhood have played in creating “a mania of speculation” and gambling of sorts on the stock market.
“We have computers and algorithms trading against other computers,” Munger said.
Munger compared Robinhood to a casino where people play craps and roulette, something Buffett agreed with.
“People and traders’ poker chips are pulling the handle. They’ve got the system set up so that if you want to buy a three-day call on the stock you can do it, and they make more money selling you calls than if you buy stock, so they teach you calls,” Buffett said.
Why It’s Important: Robinhood shares fell this past week and are now down over 45% year-to-date after seeing a decline in active users and announcing layoffs.
“Look what happened to Robinhood, from its peak to its trough, wasn’t it pretty obvious something like that was going to happen?” Munger said.
Robinhood priced shares at $38 in its July 2021 IPO, and the company has now seen shares fall below the $10 level.
Berkshire Hathaway shares are up 6.6% year-to-date in 2022.
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