Robinhood Has “Become a Very Significant Part of the Casino Aspect,” Says Warren Buffet

On Saturday, investor Warren Buffet shared his belief behind the growth in casino-like trading activity the stock market has seen (and benefited) from, according to an interview with CNBC.

“Robinhood has ‘become a very significant part of the casino aspect, the casino group, that has joined into the stock market in the last year or year and a half,”'” Buffett said at Berkshire Hathaway’s annual meeting on Saturday. For those new to the investment and trading market, Robinhood is a free-trading app that helped drive the explosive surge in retail investing during the COVID-19 pandemic.

Earlier this week, the trading app switched to using JPMorgan Chase to handle what it considers “crucial money transfers into customers’ accounts.” According to emails that went out to customers this week, Robinhood informed customers that transactions processed for cash management accounts would now be processed by Chase, rather than the previously used Ohio-based Sutton Bank.

The past year into 2021, Robinhood has experienced explosive user growth, with millions of young, new investors entering into the market amidst the COVID-19 pandemic. In just the first two months of the year, Robinhood added nearly 6 million clients, according to estimates by JMP Securities.

“American corporations have turned out to be a wonderful place for people to put their money and save but they also make terrific gambling chips,” said Buffett. “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 them any commission but your selling their order flow or whatever…I hope we don’t have more of it.”

Speaking to the “casino-like” effect, Robinhood, who holds itself out as “democratizing investing,” is often criticized for its endorsement and gamification of investing, which presents dangers to young investors who may not know exactly what they are doing. Back in January, Robinhood was the talk of every media network and investor with respect to its relationship and handling of removing GameStop from its app. However, the conversations were also fueled by Reddit-driven retail investors, which forced Robinhood to step up its game in order to guard its reputation.

Robinhood has served as a gateway for young investors to enter into and learn the ins and outs of the stock market. In his interview with CNBC, Buffet shared that he is looking forward to reading Robinhood’s pre-initial public offering SEC S-1 filing as the company prepares for its public debut, which is expected to occur in the first half of 2021.

While Buffet believes there’s nothing illegal about what Robinhood is doing, he coitized the idea of building a society around people that are acting in immoral ways. “The degree to which a very rich society can reward people who now know how to take advantage essentially of the gambling instincts of not only the American public but the worldwide public, it’s not the most admirable part of the accomplishment,” he explained.

However, Buffet remains optimistic as Robinhood continues to get closer to going public:

“American corporations have turned out to be a wonderful place for people to put their money and save but they also make terrific gambling chips,” said Buffett. “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 them any commission but your selling their order flow or whatever…I hope we don’t have more of it.”

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