Robinhood response to Buffett and Munger's comments

[LongHaul]

https://robinhood.engineering/the-old-guard-of-investing-is-at-it-again-a8b870fbfd49

 

Two of the most iconic investors insulted a new generation this weekend. Why? Because we are doing things a new way.

If the last year has taught us anything, it is that people are tired of the Warren Buffetts and Charlie Mungers of the world acting like they are the only oracles of investing. And at Robinhood, we’re not going to sit back while they disparage everyday people for taking control of their financial lives.

Robinhood has made investing simpler and more accessible to more people — and the public has responded. We are proud of that fact.

It is clear that the elites benefited from a stock market that kept many families sidelined from participating while they amassed huge wealth from decades of investing — driving a deep wedge between the haves and have-nots. Suddenly, Robinhood and other online trading platforms have opened the doors of financial markets to everyday people, deeply unsettling the old guard who will fight to keep things the same. But change is bullish. When she comes, no one can stop her.

My husband and I are both children of Caribbean parents (Jamaica and Puerto Rico, respectively). We grew up modestly in middle class neighborhoods. Our parents are college educated and they did well when we were young, but money still ran out. Once my husband and I went to college, we were on our own financially for the most part and graduated with more than $200,000 combined student loan debt even after academic scholarships. As we got older, the largely non-existent financial opportunities our families had been presented were clear.

We found ourselves facing a lot of the same legacy disadvantages that so many other millions of Americans have faced. So when the doors finally opened, we raced through to begin building our financial futures.

Take my dad for instance — an aerospace engineer who took care of the mortgage and his growing family. He didn’t have the minimum required amounts back then, which ranged from $5,000 and higher in some cases, to get an investment portfolio started.

At Robinhood, people now don’t need thousands of dollars to begin investing. We pioneered commission-free trading, and fractional shares make it possible for people with less money to invest in a piece of a stock. Take Berkshire Hathaway Class A stock. One share trades for north of $400,000. But with Robinhood, fans of the company can invest what they can afford and don’t need to amass what is a prohibitive sum for most Americans. Plenty of Robinhood customers do just that by buying a fraction of Berkshire Hathaway stocks, as well as many other stocks that Messrs. Buffett and Munger have invested in. In fact, we see that a majority of Robinhood’s customers are buying and holding.

Retail investing in America is thriving today because everyday investors are seizing the opportunity to build their own nest egg. It may never be nearly as big as the billions upon billions that the elites in this country have amassed. But it sure is something to celebrate.

Progress is adapting our old ways, and has always been how we advance as a society. From the automobile, to radio, to the internet, to the smartphone — technology is the great equalizer. And when it comes to investing, equal opportunity and accessibility is exactly what Robinhood is built to provide.

[gfp]

"But with Robinhood, fans of the company can invest what they can afford and don’t need to amass what is a prohibitive sum for most Americans."

Yes, the prohibitive sum of $280

[LongHaul]

I thought the response from Robinhood was completely ludicrous and distracted and from any real issues that were brought up - for instance Payment for Order Flow and how Robinhood is deceptive about charging its customers through PFOF.  

The response was worth reading carefully as it reminds me of other companies that were essentially lying and turned out to engage in serious financial shenanigans.

I think that Press release tells everyone a ton about the of the culture of Robinhood.  

BTW - I saw on Reddit how someone posted that Fidelity has gained 8-10 million accounts from Robinhood recently.  Unconfirmed though.

 

Edited May 3, 2021 by LongHaul

[Castanza]

Makes sense since all these young people view investing as income generation in the current. By a r/wsb backed YOLO option on Thursday for $10, sell it on Friday for $25 spend it on booze and worry about taxes later! 

The terms "retirement and nest egg" are few and far between on the r/wsb sub. 

Doesn't really change much though. Everyone should have access and should be allowed to do what they want. Just a new way to play the game imo. Penny Stocks have been accessible to people for a long time. 

[Lakesider]

What an ass.

[Nomad]

Buffett and Munger have done more to help the individual investor than anyone except for Jack Bogle. 

I can't believe that someone in the Robinhood PR department thought it was a good idea to release this statement. What an embarrassment of a response. 

[SharperDingaan]

Sorry ... but the heretics are right on this one!

The market is telling you that a BRK-B is too expensive, and needs to be split in a very big way .... grandpa just don't want to hear it. A Satoshi is a hundred millionth of a BTC, or USD 0.06 each when BTC is at USD 60,000. A 1,000 Satoshi is USD 60 and quite affordable - to just about everybody.

You want BRK to get the same 'treatment' as BTC? Split the BRK-B 100,000:1 and make a round lot of 100 shares worth around USD 28. Not going to happen while WEB/Munger are still breathing - but they are not going to live forever.

SD

 

[Pelagic]

1 hour ago, SharperDingaan said:

Sorry ... but the heretics are right on this one!

The market is telling you that a BRK-B is too expensive, and needs to be split in a very big way .... grandpa just don't want to hear it. A Satoshi is a hundred millionth of a BTC, or USD 0.06 each when BTC is at USD 60,000. A 1,000 Satoshi is USD 60 and quite affordable - to just about everybody.

You want BRK to get the same 'treatment' as BTC? Split the BRK-B 100,000:1 and make a round lot of 100 shares worth around USD 28. Not going to happen while WEB/Munger are still breathing - but they are not going to live forever.

SD

 

How is this relevant? The article is disingenuous in that it fails to even mention the existence of BRK.B shares, something it's hard to imagine the author doesn't know exist because taking the time to get a quote for BRK.A on any trading platform is going to show the ticker BRK.B right below it. Pure laziness on the author's part.

BRK.B's equivalence to a Satoshi or any other stock's price is irrelevant. Americans just got $1,400 stimulus checks, enough to buy 5 BRK.Bs at $280 - simplicity.

[JRM]

53 minutes ago, Pelagic said:

How is this relevant? The article is disingenuous in that it fails to even mention the existence of BRK.B shares, something it's hard to imagine the author doesn't know exist because taking the time to get a quote for BRK.A on any trading platform is going to show the ticker BRK.B right below it. Pure laziness on the author's part.

BRK.B's equivalence to a Satoshi or any other stock's price is irrelevant. Americans just got $1,400 stimulus checks, enough to buy 5 BRK.Bs at $280 - simplicity.

More relevant is how many weekly call option lottos can I buy on BRK.B with a $1,400 stimmy check?

[LC]

Or the zilions of brokers that allow purchase of partial shares.

Robinhood is crap. Look at all the GME / wallstreetbets investors who were screwed when robinhood restricted trading. They are pure garbage in my eyes.

[SharperDingaan]

Simplicity is 5,000 BRK-B for USD 0.28/each - to a young person, 5,000 is a lot better than a piddling 5.

The reality of course is that to remain investable, a BRK-B post split, would still need to trade > USD 5 - so it splits at maybe 50:1. and a round lot costs USD 560 vs USD 28. Point? The world has changed, and even the mighty BRK is not immune to change

SD

 

 

[Nomad]

I don't get why the Robinhood apologists pretend that zero commissions are some revolutionary new thing. They're not. Back in 2006 there were already discount brokerages offering zero commissions on stock trades. Zecco offered a limited number of free trades pre-GFC, and so did several other brokers. Furthermore, Robinhood's PR team acting like fractional share trading is some brilliant new innovation is also highly disingenuous. I've been able to trade fractional shares at other brokerages for a long time now. Using the fractional trading point to attack Buffett as a rent-seeking elite is even more absurd, given that Buffett specifically created Berkshire B shares in the mid-1990s to prevent individual investors from getting duped by fee-collecting promoters who were setting up trusts to make BRK fractional interests available to the masses.

The difference between other discount brokerages and Robinhood is qualitative. Other discount brokers offer zero commission trades and fractional trades but don't make use of the gamification elements (flashing lights, Tinder-like swiping when you make a trade, etc.) to the extent that Robinhood does. I've never seen confetti pop up on someone's screen when they make a trade at Fidelity. Saying that people will learn by losing money on Robinhood and "graduating" to more sophisticated investing is a bad argument. It's the equivalent of claiming that a certain amount of people who enter the Vegas casinos will learn from their mistakes and one day study linear algebra and advanced probability theory. It may be true for a vanishingly small part of the population, but it's not the reality for the average person, especially one who is 1-2 years out of high school and who doesn't know any better. 

Add in the payment for order flow and the history of questionable moves, like making its users' aggregate trade data publicly available in an API, and it's clear that Robinhood's interests are diametrically opposed to those of the retail investor. That's why Munger and Buffett attack it. Not because it's "innovative" (it's nothing of the sort), but because it's a shady company run by shady people. 

Edited May 4, 2021 by Nomad

[hasilp89]

47 minutes ago, Nomad said:

Other discount brokers offer zero commission trades and fractional trades but don't make use of the gamification elements (flashing lights, Tinder-like swiping when you make a trade, etc.) to the extent that Robinhood does.

+1

robinhood is trying to control the narrative with this response. The fact that they need to try and do this is indicative of what they are about.

[adhital]

7 hours ago, Nomad said:

I don't get why the Robinhood apologists pretend that zero commissions are some revolutionary new thing. They're not. Back in 2006 there were already discount brokerages offering zero commissions on stock trades. Zecco offered a limited number of free trades pre-GFC, and so did several other brokers.

Robinhood pioneered commission-free trading. They are the first online brokerage to do so. Is it not? unlike 20 free trade when you open an account with us type deal

Edited May 5, 2021 by adhital

[rkbabang]

16 hours ago, adhital said:

Robinhood pioneered commission-free trading. They are the first online brokerage to do so. Is it not? unlike 20 free trade when you open an account with us type deal

Exactly. Fidelity didn’t offer me unlimited free trades until after Ribinhood existed.  I don’t really care about all the other issues raised in this topic. I can trade just fine without confetti, but if others like it, who am I to judge.  That’s what makes a market, you do you, I do me, and they do it their way.   Like anything else, some will benefit, others ... won’t.  If someone “1-2 years out of high school” wants to set up an account and start trading stocks good for them, they are adults. Whether or not they learn from the experience and grow is entirely up to them.

Edited May 5, 2021 by rkbabang

[Lakesider]

Its not comission free, they are selling orderflow, They are saying its free but getting you a worse price? Thats the issue here, Its just a more complicated way than charging comissions.   "payment for order flow, generated about $331 million in revenue for Robinhood in the first quarter"

[adhital]

18 minutes ago, Lakesider said:

Its not comission free, they are selling orderflow, They are saying its free but getting you a worse price? Thats the issue here, Its just a more complicated way than charging comissions.   "payment for order flow, generated about $331 million in revenue for Robinhood in the first quarter"

Well.. I think paying a cent for buying 1 shares of Apple  is much better then paying a flat commission. For average retail investor with limited capital, Robinhood's model is nothing to complain about.

https://en.wikipedia.org/wiki/Payment_for_order_flow#:~:text=Payment for order flow (PFOF,been called a "kickback".

Payment for order flow (PFOF) refers to the compensation, as much as 1 penny per share, that a stockbroker receives from a market maker in exchange for the broker routing its clients' trades to such market maker. 

[RichardGibbons]

If the broker is receiving 1 cent per share, it's because they're on average making much more than one cent a share because the order was routed to them rather than someone else. So, the cost to the retail trader is going to be much more than a cent.

That said, I agree that for those with with limited capital, Robinhood's model is fine. Economies of scale matter, and limited capital implies no benefit from economies of scale.

[rkbabang]

For the majority of trades I’ve done in my life a $0.01/share charge would be cheaper than a $7-$10 flat fee.  There have been rare cases where I’ve purchased 10,000 shares of a low priced stock, but with most stocks even low to mid 5-figure dollar amounts are usually 500 shares or less.  For someone making trades worth 10s or 100s of dollars this is an even better deal. It might not be free, but nearly so.

[Lakesider]

My European broker only charges me a comission of 1c per share on US trades. Im sure there is little difference between low cost broekers and  payment for orderflow companies, the issue is that its a shady and opaque way to charge someone fees. 

[Jurgis]

I think people (including CoBF posters) don't understand PFOF and its cost to clients. Reading that Wikipedia article might be a good first step before posting about PFOF.

[adhital]

Nothing comes for free and life is not fair. All I need to know is that that I'm paying less then 10c buying 2 shares APPL using PFOF vs.  flat fee.  It’s almost free.  I mean no disrespect but I don't need to be an Einstein to understand order flow Or, care about it either for my 2 shares of trading

I’m not advocating for Robinhoold. They should've disclosed it better about order flow and not say completely *free*; however, they provided a platform for many retail investors to learn about stock market, trading and so forth. Now every brokerage is following their model. They deserved to be praised not just vilified. That's my argument. 

 

Edited May 6, 2021 by adhital

[LC]

Sure, and we are all grateful that AOL popularized home internet back in the 90s. But that doesn't mean I am going to be an AOL customer today.