What Warren Buffett Didn’t Say in His Rant About Robinhood

Andy Snyder|May 5, 2021

Poor, poor Warren Buffett.

The fella almost got himself canceled over the weekend.

The self-proclaimed icon of old-school wealth generation got into a bit of trouble when he took on the wrong crowd.

Few folks cared about his thoughts on the revolutionizing effects of the SPAC market… or that what he said about interest rates should sound alarms (and hints that he may be reading our work)… or that he’s selling virtually everything else and buying back his own stock.

Nope, that stuff doesn’t make good headlines.

Nobody cares.

What sells, though, is when old age meets new age.

Fighting Words

When asked for their thoughts on Robinhood, Buffett and his partner Charlie Munger went on a bit of a rant.

It’s one worth studying… especially the stuff at the end.

Buffett doesn’t like Robinhood, the oh-so-simple trading platform that brought free trading to the masses.

“It’s become a very significant part of the casino group that has joined into the stock market in the last year or year and a half,” Buffett said.

Munger, who was quite cranky, took things much further.

It’s “deeply wrong,” he said. It is “god awful that something like that brought investments from civilized men and decent citizens.”

To these two, making money is all about the fundamentals.

They invest for the long haul – the very long haul – and buy only when they can get an obvious bargain.

Then again, following that strategy, Buffett hasn’t beaten the market in years. And he’s having a hell of a time buying anything these days.

The folks at Robinhood, as we’ve come to expect from so many firms these days, didn’t respond with cold hard facts.

They appealed right to the headline writers. They avoided the “what” and the “how” and went right for the “who.”

“There is an old guard that doesn’t want average Americans to have a seat at the Wall Street table, so they will resort to insults,” Robinhood said in a statement.

“The future is diverse, more educated and propelled by engaging technologies that have the power to equalize. Adversaries of this future and of change are usually those who’ve enjoyed plentiful privileges in the past and who don’t want these privileges disrupted.”

Although we once were a devout follower of Buffett’s ideas, we’re not much of a fan these days. They don’t work anymore.

Even so, Robinhood’s attack was childish and ill-informed.

There’s no “old guard” that doesn’t want the average American to get rich.

No way. It’s just the opposite.

If anything… Buffett says it’s Robinhood that’s preying on the poor.

To prove his point, Buffett went for the jugular.

The app’s no different from the lottery, he said. They’re both “taxing hope.”

“It’s a dirty way to make money,” the 97-year-old Munger said, wrapping it up.

Your Privilege Is Showing

Why is that?

Why would two men who made their living in the stock market cry foul over an app that has opened trading to the masses… an app that’s made trades all across the industry free to make… and an app that allows somebody to buy shares of a big, good company the instant they get the idea to do so?

Is it because they’re old, “privileged” guys?

Is it because they already made their money and now don’t want you to get yours?

Absolutely not.

Anybody who says so is not only ignorant of the truth… but also flat-out speaking their political agenda.

It should be made quite clear that Buffett did not make his fortune by trolling Reddit forums. He didn’t get rich by talking up shares of GameStop.

He did it the long, hard, boring way.

He bought insurance companies for their cash flow. And he used the cash flow to buy good companies at great prices.

But here’s the problem with that idea…

It’s dead.

With Uncle Sam pounding on the chest of every zombie company out there, the great discounts are gone. With interest rates at zero, even the lousy firms can stay alive. And with free cash in the pockets of millions of Americans, the prices for everything are far higher than they should be.

Every investor knows it.

Buffett knows it. Munger admitted it. And the Robinhood crowd is merely trying to take advantage of it.

The wise folks with a few decades under their belts know where things are headed. The young traders are just trying to take advantage while they can.

But like an infant crawling to the side of the pool to get a sip of water, they’re doing it all wrong.

What Not to Do

As Buffett said, they’re gambling… not investing.

That’s an idea we take seriously.

We’ve got zero qualms with brokers who make it easier, cheaper and faster to invest. That’s innovation. And the more folks it brings to investing, the better.

Buying a share of the world’s great companies is the No. 1 way to get where we want to be financially.

The problem, as we tend to say so much, isn’t the platform. It’s the people.

You will not get rich trading Elon Musk’s latest tweet.

You will not get rich buying shares of whatever stock the media is hyping up today.

One or two folks may. But you won’t. You’ve got better odds playing the lottery.

Both strategies are little more than a “tax on hope.”

But here’s the thing… You’ll never get rich if you don’t invest. Just because the market doesn’t meet your standards… does not mean you can sit it out.

Buffett is learning that the hard way. Like we said, he’s doing very little buying these days.

He’s a net seller. And it’s hurting him.

The odds of getting rich without buying are very, very poor.

So what’s a rational mind to do?

The rational mind already knows.

Stay out of the fringes. Hate the extremes.

Buy good stocks, as Buffett would say. Buy them as cheaply as possible, as Robinhood would beg.

And never play the lottery.