There is no doubt in anyone’s mind that what he has done over the years is worthy of a place in the money manager’s hall of fame, but times are changing in the investing world
September 26, 2021
On Saturday we were treated to the Berkshire Hathaway shareholders meeting. This is always a big deal in the economic calendar, not so much for moving share prices, but for getting the opinion of one of the most revered investors in history, Warren Buffet.
There is no doubt in anyone’s mind that what he has done over the years is worthy of a place in the money manager’s hall of fame, but times are changing in the investing world, and they are changing at a rate he has never seen before and just isn’t comfortable with.
His thoughts on retail trading are well known and he had much to say about it at the meeting.
He believes millennial-favoured stock trading app Robinhood is contributing to the speculative, casino-like trading activity in the stock market and benefitting from it.
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 on Saturday.
“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 you’re selling their order flow or whatever...I hope we don’t have more of it.”
He didn’t grow up in a world run by technology, but it is here to stay and it will keep on changing how people invest. It’s time to embrace it, and control it, not put it down to ‘silly children’ playing games they don’t understand. There is no doubt he would agree with what The Portfolio Platform are trying to do: bridge the gap between the two worlds.
Robinhood — whose mission is to “democratize investing” — is often criticized for its gamification of investing. The Silicon Valley start-up found itself in the middle of a firestorm in January amid the short squeeze in GameStop, which was partially fuelled by Reddit-driven retail investors. The app has taken steps to disband this reputation, by eliminating the confetti animation when investors make their first trade. The fact that this was ever in place makes it very clear the kind of platform it is.
Buffett said he was unhappy to learn short-term stock options activity in Apple’s stock was surging. He said he expected a lot of that activity is coming through Robinhood.
Robinhood’s user growth has been explosive in 2020 and 2021. Millions of new investors jumped into the market during the pandemic, and millions more have joined in 2021. The stock trading app Robinhood added nearly 6 million clients in the first two months of the year, according to estimates from JMP Securities.
“There’s nothing illegal about it, there’s nothing immoral but I don’t think you’d build a society around people doing it,” said Buffett.
“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,” said Buffett.
Berkshire Hathaway’s Vice Chairman Charlie Munger was less gentle with his description of Robinhood.
“I think it’s just God awful that something like that brought investments from civilized men and decent citizens,” Munger said. “It’s deeply wrong. We don’t want to make our money selling things that are bad for people,” Buffett’s right-hand man added.
Robinhood defended its mission and the future of retail investing following Buffett’s comments.
“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,” a Robinhood spokesperson told CNBC. “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. Their criticisms are unfortunate but they prove why Robinhood’s mission is in fact critical.”
“The new generation of investors aren’t a ‘casino group.’ They are tearing down old barriers to investing and taking control of their financial futures. Robinhood is on the right side of history,” the spokesperson added, and even more so, The Portfolio Platform.
As I said at the start, Warren Buffet is without question a legend, but legends are people who had their time in history. He is 90 years old, and he is commenting on the habits of people 3 generations below, who’s only crime is that they are interested in stocks, and have the technology to join in what has always been a snobbish industry for the overprivileged.
In the past, Warren Buffet could buy a stock and its share price would immediately gain traction as many followed suit. Him buying a stock could increase its value by 3% instantly. When you think about it, is him announcing what he has done so different from the Reddit crowd announcing what they had done with GameStop? Is his problem that he no longer has this control over the investment world and Berkshire Hathaway’s influence is waning?
He has always recommended the S&P 500 index funds. If his influence over stock picking is falling by the wayside, then perhaps this is reflected in the fact that the S&P outperformed Berkshire by 16 percentage points in 2020. Stock picking is hard, index picking is much more reliable.
If you’re interested in a leveraged index fund, The Portfolio Consultancy run a private fund for HNW individuals with a minimum investment of £50,000 which is hosted at UK Asset Managers. They only trade indices, predominantly as a tracker, although they also have the ability to short the market, or decrease leverage and preserve capital at any given moment. Last year the return was a staggering 79%, and they have already increased this by 22% so far in 2021. For more information, please click here.
It is now time, for the new generation of investors, and a new generation of investing. At The Portfolio Platform, we have embraced this. We have no secrets; our traders’ positions are visible on your app and dashboard at all times. You can still maintain control, all we are trying to do is limit what Buffet refers to as the ‘casino’, by allowing only experience traders onto the platform for investors to autotrade.
I think what has happened has caught the ‘old guard’ off balance and they don’t like it. We are looking at two extremes. On one side, Buffet and his minions, decades of old school experience, picking stocks and then having people copy what he’s done so the prices go up and they all make money.
On the other side, we have the general public picking up their iPhone and buying Apple and Tesla shares. Don’t get me wrong, we fully appreciate the danger here, but we don’t agree that they shouldn’t be allowed to enjoy a world that has always been cut off to them. What we offer, is the middle ground.
Investors can pick the traders of their choice, and watch their live profit and loss. They can pick multiple traders and create their own hedge fund. What they can’t do, is actually pick the stocks for themselves. Buffet is right in that this is not something you can just guess at, if you do, there will be a day of reckoning where the inexperienced get hurt. Pick from our traders who have all been vetted by us, also with decades of experience so we know what we are looking for. By picking the traders and not the trades, you aren’t exposing yourself to problems you don’t even know you have until it’s too late.
We believe we have solved the problem for both sides. Just have a look at the performances of our traders and see for yourself. We are not the snobbish old guard, and we are not the inexperienced gambler of the new guard. Harness the experience of our experts but maintain control over your portfolio on The Portfolio Platform.
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“TPP might just be about to revolutionise investment for the retail market.”
- London Stock Exchange 2020