/Charlie Munger says novice investors are getting lured into a bubble in ‘dirty way’ by Robinhood
Charlie Munger says novice investors are getting lured into a bubble in 'dirty way' by Robinhood

Charlie Munger says novice investors are getting lured into a bubble in ‘dirty way’ by Robinhood

Charlie Munger

Lacy O’Toole | CNBC

Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s longtime business partner, issued a dire warning on the manic momentum-driven trading activity by amateur investors and said commission-free trading apps like Robinhood were partly to blame for the bubble.

“It’s most egregious in the momentum trading by novice investors lured in by new types of brokerage operation like Robinhood and I think all of this activity is regrettable,” Munger said Wednesday at the Los Angeles-based Daily Journal annual shareholders meeting, which was live streamed by Yahoo Finance.

The 97-year-old investor said retail traders are being enticed by brokerage apps touting free trading. Robinhood has been accused by critics of gamifying investing through its app. It and other online brokerage firms rely on a controversial practice called payment for order flow as their profit engine in lieu of commissions. These brokers receive payments from market makers like Virtu and Citadel Securities for routing trades to them.

“No one should believe Robinhood trades are free,” Munger said. “The frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers.”

‘Dirty way of making money’