Robinhood returned fire to Warren Buffett and the old guard for attacking it for supposedly allowing millions of “everyday people” to take “control of their financial lives”.

Tit for Tat

A war of words seems to have started Saturday during the annual meeting at Berkshire Hathaway, when Warren Buffett openly attacked Robinhood for its approach to allegedly inexperienced young people who see trading more like a source of adrenaline, much like gambling, rather than a long-term strategy-based activity. And Robinhood now responded.

“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.”

Jacqueline Ortiz Ramsay, Head, Public Policy Communications, Robinhood

Jacqueline Ortiz went on to draw a dividing line between the elite and everyday people, as the former “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”, positioning Robinhood as a defender for the poor, much like the heroic outlaw from English folklore behind the name of the brokerage.

She finished her attack by claiming that Robinhood had been singled out by the elite for deeply unsettling them by opening the doors to the new breed of young traders. Indeed, it is mind boggling why a long-term investor like Buffett would even bother to deal with day trading tactics deployed via the brokerage which seemed to have provided young people with adrenaline-like experiences, besides short-term profits.

The Genie is out

And besides, if it was not for Robinhood which banned trading and saved some of the hedge funds caught in the merciless bear squeeze performed by a group of people united via a trading forum, risking its license in the process, the outcome might have been even worse for the big sharks and more encouraging for the beginners in trading looking for fast profits and huge doses of adrenaline.

One of the first lessons a trader learns is that markets are driven by raw emotions like fear and greed and while some of the big players found a way around the emotional component by developing high-frequency trading (HFT) algorithms to benefit from other participants’ emotions, the sudden elimination of fear is threatening for the status quo.

Market rallies are usually fueled by triggered stop-loss orders of traders caught on the wrong side of the market, but what happened with GameStop was that buyers of the stock were not afraid to lose (and probably did not use stop-loss orders) considering the trade as their rubicon. The elimination of fear did not stop the game but fundamentally changed its rules by introducing an uncontrollable variable.

The threat brought in by the unknown factor was later on addressed by the Securities and Exchange Commission (SEC) which suspended trading on some stocks by claiming they were propelled by social media frenzy. But the genie is already out of the bottle and even people like Buffett and his right-hand Munger would have to take it into account.