Charlie Munger, the vice-chairman of Berkshire Hathaway and founder Warren Buffet’s right-hand man, blasted Robinhood, slammed SPACs, dismissed the significance of bitcoin and warned that speculative stock trading would end badly.
Munger spoke at the annual shareholder meeting of the Daily Journal Corp., which publishes the LA Daily Journal and San Francisco Daily Journal. Munger serves as chairman.
He said that speculative investors are frenzy-buying stocks on credit because they expect them to keep going up. That has formed a speculative bubble.
The Wall Street Journal has identified “the everything bubble” that is expected to be popped by a surprise rate hike by the Federal Reserve.
“These things do happen in a market economy, you get crazy booms. I’ve been around for a long time and my policy’s always been to just ride it out,” the 97-year-old executive said during the meeting.
A speculative bubble is a sharp, steep rise in prices fuelled by market sentiment and momentum, more than underlying fundamentals, according to Investopedia.
“Shareholders should be more sensible and not crowd into stocks and just buy them just because they’re going up and they like to gamble,” Munger said. “I think it must end badly but I don’t know when.”
New trading apps such as Robinhood have lured novice investors to the slaughterhouse by gamifying stock trading, according to Munger.
Robinhood 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.”
Munger also sounded the alarm on the red-hot special purpose acquisition companies (SPAC) market, saying it too speaks to the speculative mania on Wall Street.
SPACs raise money from investors in an initial public offering, then merge with a private company and take it public in less than two years.
On bitcoin, Munger said it will not be “the medium of exchange for the world” because it is too volatile.
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“It’s really kind of an artificial substitute for gold and since I never buy any gold, I never buy any bitcoin. I recommend that other people follow my practice.”
Asked to choose between bitcoin trading at $50,000 or Tesla’s fully diluted enterprise value of $1 trillion, Munger said “I can’t decide the order of precedency between a flea and a louse.”