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In a recent meeting, Warren Buffett voiced his concerns about Robinhood and the entire memestock movement of investing – here were his words, and my own thoughts about what he said – Enjoy! Add me on Instagram: GPStephan
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During Warren’s annual stock holder meeting, he came out against the app by saying that Robinhood was catering towards the YOLO instinct of investors, and contributing towards the speculative trading activity in the stock market.
In other words, his concern is that, when Robinhood has a financial interest in you trading as often as possible, because THAT’s how THEY make money…it unknowingly promotes the type of behavior that could be DETRIMENTAL to YOU, as an investor, at YOUR EXPENSE.
His biggest lesson from this is that, even though you might be INCREDIBLY sure of yourself NOW – the future is unpredictable, and it’s unlikely that the winners today will still be the winners 20 years from now. That’s why he stressed the importance of having a broad, well-diversified portfolio, such as through passive index funds.
He also cautioned investors about the difficult of identifying winners in new and growing industries, pointing out that a large number of companies who made automobiles in the early 1900’s ended up closing down, well before the industry had matured.
All of this to say that, at the core – buying and selling speculative stocks, within a company who WANTS you to trade more – is likely to wind up losing you money, over a well diversified portfolio that you buy once – and then hold for as long as possible.
In terms of my own opinion though…I see both sides.
On the one hand, as someone who’s full time career is centered around talking nonstop about personal finance…I get why Robinhood WANTS to make the app as simple and “fun” as possible. Their target demographic, just like mine, is mostly between the ages of 18 and 35, they want to learn about personal finance, and it’s up to YOU to make that relatable to a demographic that ordinarily might not have been interested in investing.
Investing is a topic which needs to be positioned in such a way that attracts people who ordinarily wouldn’t think of starting up a 401k, or building up their credit score, or investing in a broad index fund which otherwise is “dull” – and, I feel from that perspective, Robinhood followed the same path, and that’s what they NEEDED to do.
Now, I get that some people just want it to be left alone, and if people lose money – it’s their own fault – but, the SEC has already determined that they NEED to step in and protect people from themselves, once a company has a financial interest in you doing something that increases your likelihood of losing money…and that’s where the problem arises. Robinhood financially benefits from you doing something which, long term, has proven to be detrimental…so, how much responsibility should Robinhood have to make sure you know those risks?
It’s a tough one because, on the one hand…I think people should be free to make their own choices, and there shouldn’t be a limitation to what you can and cannot do…but, if a company profits from you doing something that could be detrimental long term…that needs to be disclosed, so you know the risks associated with what you’re doing.
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*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. This is not investment advice. Public Offer valid for U.S. residents 18+ and subject to account approval. There may be other fees associated with trading. See Public.com/disclosures/