The stock market continues to rally in 2021.
Even with a possible hike in capital gains taxes on the horizon, the Dow Jones Industrial Average soared from a little over 30,000 at the beginning of January to over 34,000 on Monday, according to MarketWatch.
However, if you’re thinking of gambling in the stock market — particularly on apps like Robinhood — Warren Buffett and Charlie Munger have a message for you: Don’t jump in so quickly.
According to The Associated Press, Buffett and Munger — the chairman and vice chairman of Berkshire Hathaway — made the comments at the investment holding company’s annual meeting Saturday.
“There’s a lot more to picking stocks than figuring out what will be an incredible industry in the future,” said Buffett, whose name is practically synonymous with successful investing.
“I just want to tell you that it’s not as easy as it sounds.”
According to Buffett, Robinhood, the app that allows easy and commission-free brokerage trades, “maybe set out to attract” those who wanted to gamble on the stock market, according to Reuters.
“There is nothing illegal to it, there’s nothing immoral, but I don’t think you build a society around people doing it,” he said.
Robinhood, which came to prominence after the GameStop stock run-up earlier this year, drew even harsher criticism from Munger, Buffett’s longtime business partner.
“It’s just god-awful that something like that would draw investment from civilized man and decent citizens,” he said.
“It’s deeply wrong. We don’t want to make our money selling things that are bad for people.”
Munger thinks even less of cryptocurrency, by the way: “I don’t welcome a currency that is so useful to kidnappers and extortionists and so forth,” Munger said of Bitcoin, according to The AP.
“Nor do I like shoveling out a few extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. I think I should say modestly that I think the whole damn development is disgusting and contrary to the interests of civilization.”
As for Robinhood, Buffett didn’t necessarily think it was creating any kind of moral externalities, but worried individuals would end up losing big if they weren’t just making short-term trades on stocks like Apple.
“The gambling impulse is very strong in people worldwide and occasionally it gets an enormous shove,” Buffett said, according to Reuters.
“It creates its own reality for a while, and nobody tells you when the clock is going to strike 12 and it all turns to pumpkins and mice,” he added.
Now, it’s always interesting when those who spend the most money in the casino want to severely restrict access to said casino, as both GOP Sen. Ted Cruz of Texas and Democratic Rep. Alexandria Ocasio-Cortez of New York agreed for roughly five minutes on Twitter until things went south:
Fully agree. 👇 https://t.co/rW38zfLYGh
— Ted Cruz (@tedcruz) January 28, 2021
I am happy to work with Republicans on this issue where there’s common ground, but you almost had me murdered 3 weeks ago so you can sit this one out.
Happy to work w/ almost any other GOP that aren’t trying to get me killed.
In the meantime if you want to help, you can resign. https://t.co/4mVREbaqqm
— Alexandria Ocasio-Cortez (@AOC) January 28, 2021
For a moment, it was almost like we could imagine all the people living together in harmony — and then AOC decided to claim Cruz tried to have her “murdered” during the Capitol incursion.
Nevertheless, aside from her factually challenged bunkum, the question still remains why people who use Wall Street as a casino with other people’s money object to it when other people use it as a casino for their own money.
As long as they’re not telling people how they need to spend their money, however — and Munger sounds like he’s coming dangerously close to that — giving you advice on how you should spend your money isn’t necessarily a bad idea.
Keep in mind, too, that Buffett, Munger and Berkshire Hathaway are also some of the most cautious investors in the world, having built up a massive holding company through value investing, which basically looks at stocks that are undervalued by the market even though the fundamentals of them are essentially good, according to The Balance.
That’s why, according to The AP, they’re sitting on a total of $145.4 billion in both cash and short-term positions: They haven’t found any prospects that are good enough for the long-term investing Berkshire Hathaway is best known for.
Picking individual stocks is risky for the small investor because they don’t necessarily have the information needed to pick the right company to succeed, even if they know what industries they think will do well. Take cars, which Buffett used as an object lesson:
“He pointed out that in 1903 there were more than 2,000 car companies, and nearly all of them failed even though cars have transformed the country since then,” The AP reported.
If you’re a small investor and believe the market is going up, you’ll generally be better off taking a position in an S&P 500 index fund or something similar as opposed to trying to pick individual stocks on Robinhood and going to town.
This is especially true when governmental interference in the private sector is likely to become far more widespread in the next few years under the Biden administration — and with the potential for a capital gains tax hike.
Then again, far be it from anyone to tell you that you can’t gamble the same way Buffett and Munger could if they wanted to. The fact that they’re not the gambling type, however, should tell a great deal.
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