Robinhood is going public. Warren Buffett, Michael Burry, and other top investors have blasted the trading app and warned day traders to be careful.

Michael Burry against a gray promotional backdrop for the movie "The Big Short."
Michael Burry.

  • Robinhood is poised to go public on Thursday at a $32 billion valuation.
  • Warren Buffett, Michael Burry, and other top investors have blasted the trading app as reckless.
  • Market veterans have also warned day traders against rampant speculation and taking on debt.
  • See more stories on Insider’s business page.

Robinhood is set to go public on Thursday at a potential $32 billion valuation, capitalizing on booming demand from retail investors seeking to trade stocks, cryptocurrencies, and other assets during the pandemic.

The trading app is popular among amateur investors and day traders because it doesn’t charge commissions, allows fractional investing, and trusts its users to trade on margin and buy and sell risky, complex financial products such as options.

However, Warren Buffett, Michael Burry, and other leading investors have accused Robinhood and its peers of encouraging speculation and excessive risk-taking. They have also warned market newbies not to borrow too much, trade things they don’t understand, or treat investing like a game they’re guaranteed to win.

Robinhood didn’t immediately respond to a request for comment from Insider.

Here’s what 10 top investors have said about Robinhood and the day-trading boom. Their quotes have been lightly edited and condensed for clarity:

Warren Buffett

Warren Buffett
Warren Buffett, the chairman and CEO of Berkshire Hathaway.

“There’s nothing illegal about it, there’s nothing immoral. But I don’t think you build a society around people doing it. I hope we don’t have more of it.” — accusing Robinhood of encouraging users to trade options rather than invest for the long term. (May 2021)

Michael Burry

Michael Burry against a promotional backdrop for the movie "The Big Short."
Michael Burry, the star of “The Big Short” and head of Scion Asset Management.

“If you do not use #robinhood, you have to see it to understand what #gamification of #stonks/options means. So here it is. If this looks like a serious investing app to you, and NOT a dangerous casino ‘fun for all ages,’ you’ve been #gamified.” (February 2021)

 

Mark Cuban

Mark Cuban speaking at Business Insider's IGNITION conference on December 3, 2018.
Mark Cuban, the “Shark Tank” star and Dallas Mavericks owner.

“It’s not investing, and it’s almost not even trading, it’s more like revenge. It is the revenge of the nerd. It’s the revenge of the little guy.” — commenting on the horde of retail investors who sparked the meme-stock boom (February 2021)

“If you’re a day trader and you can walk and chew gum, you are making money right now. You’re doing the same thing they did in the late ’90s. You’re rolling it. You think everybody is a genius in a bull market.” (June 2020)

Chris Sacca

chris sacca
Chris Sacca, the founder of Lowercase Capital and an early investor in Uber, Twitter, and Instagram.

“I have axes to grind against a lot of the guys you’re wrecking, and I love to hear about real people stacking chips. But, please, from someone who has been there … don’t trade what you can’t afford to lose.” — advising the retail investors who executed short squeezes and hammered hedge funds to be careful (January 2021)

“To the angry Robinhood bros who got into trading stocks this year: I was wrong. You’re amazing. This has nothing to do with the market. It’s all you and your mad skillz. Don’t take profits off the table. Double down, on margin. Borrow everything you can. Stonks never go down!” — sarcastically responding to the backlash from day traders after he tweeted they got lucky and should cash out some of their profits (January 2021)

Charlie Munger

charlie munger
Charlie Munger, Warren Buffett’s business partner and Berkshire Hathaway’s vice-chairman.

“Robinhood is beneath contempt. It’s a gambling parlor masquerading as a respectable business. It’s basically a sleazy, disreputable operation.” (May 2021)

Leon Cooperman

Leon Cooperman holding his glasses up to his right temple.
Leon Cooperman, the former CEO of Omega Advisors, runs a family office now.

“They are just doing stupid things. This will end in tears.” — commenting on retail traders buying shares in bankrupt companies and making other high-risk trades (June 2020)

Jim Chanos

Jim Chanos
Jim Chanos, the president and founder of Kynikos Associates.

“They are going to trade themselves into oblivion. We are at prices now where the crowd that is betting on margin and betting through options had better be right. Anything that corrects and reverts to the mean, or to real valuation metrics, is going to destroy a whole generation of investors.” (November 2020)

Jeffrey Gundlach

Jeffrey Gundlach
“Bond King” Jeffrey Gundlach, the CEO of DoubleLine Capital.

“There’s been an incredible increase in tiny retail investor activity in terms of the accounts on Robinhood and other platforms that have just exploded in term of size. I think that’s pretty dangerous. These people that are buying slices of the stock market don’t even know what they’re doing, and have probably lost money already.” (June 2020)

“We’ll have a tremendous unwind of a lot of the money that thinks the stock market is a one-way thing.” (March 2021)

Howard Marks

Howard Marks
Howard Marks, the cofounder and co-chairman of Oaktree Capital Management.

“Some people think it’s a gambling game, like betting on football. It’s not healthy to have people who are buying stocks for fun. It reminds me of the people who were day trading in 1999 and declaring day trading a ‘can’t miss’ strategy. The tech stocks crapped out in 2000.” (June 2020)

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Day traders are cheering on a small medical-diagnostics company that’s soared 237% today after announcing a $28 million order

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Day traders are cheering on a small medical diagnostics company that’s seen its stock move as high as 237% Wednesday after it announced a multi-million purchase order for its COVID-19 antigen tests.

After hitting their lowest point since 2010 on Tuesday, shares of Chembio Diagnostics shot up to $6.95 by mid-morning Wednesday. The Hauppague, New York company announced it received a $28.3 million purchase order from Bio-Manguinhos for the purchase of Chembio’s COVID-19 antigen tests.

Bio-Manguinhos develops and produces biopharmaceutical products to support Brazil’s national public health system.

Investors on financial social media site StockTwits cheered Chembio’s stock surge, with one user commenting “With this much volume I am thinking we hit high 7s before any dip!!!!! LETS GO!”

“$CEMI holding through tomorrow-not concerned about dips,” another user said.

Chembio was the top trending ticker Wednesday afternoon on StockTwits.

Trading volume also exploded in Chembio, with over 286 million shares having exchanged hands as of Wednesday afternoon, compared to the average volume of 3.8 million, according to Bloomberg data.

stock chart

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The hedge fund badly bruised by betting against GameStop is still struggling after ending the first half with a 46% loss, report says

Gabe Plotkin

Gabe Plotkin’s Melvin Capital Management, targeted by the Reddit army of day traders for its bearish GameStop bets, ended the first half of the year with a 46% loss, Bloomberg reported.

The New York-based hedge fund, which suffered a stunning 53% loss in January from the Reddit-trader short squeeze, gained 1% in June. But it is still struggling to recover, Bloomberg said in the Thursday report, citing sources familiar with the matter.

Melvin Capital, founded by star portfolio manager Plotkin, did manage to stage something of a comeback with a 22% gain in February. But its overall first-quarter loss stood at 49%, Insider understands.

The hedge fund got torched by the Reddit army alongside other high-profile firms that had big bets against GameStop when day traders banded together to send shares of the gaming retailer skyrocketing. When the price of a stock rises, short sellers must typically cover their positions by buying shares at that higher price.

Melvin Capital lost a chunk of its assets in the trading frenzy, ending January with $8 billion in assets, down from $12.5 billion at the start of the year. Its assets had risen to $11 billion as of June 1, the Financial Times and Bloomberg reported.

After the January hit, the fund has somewhat recovered. It is up 18% for the five months between February and June, Insider understands. It gained 5.4% in the second quarter.

The hedge fund is understood to be taking smaller-sized positions to limit its exposure to single companies. It exited its public short positions against GameStop, AMC and other stocks in the first quarter, but may have still held non-public, more traditional short positions.

Founder Gabe Plotkin has also asked a team of data scientists to comb through social media and day-trader forums for stock names of interest to retail traders, Bloomberg reported.

A spokesperson for Melvin Capital declined to comment.

Read More: Prominent market bear Albert Edwards warns that investors who prematurely bet on higher inflation are set up for further losses – and lays out the pathway to record-low bond yields

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Expert investor James Stack warned of rampant market speculation, predicted inflation, and blasted the Fed in a recent interview. Here are the 8 best quotes

James Stack
James Stack.

  • James Stack called out massive speculation in stocks, real estate, crypto, and other markets.
  • The investor said Federal Reserve policies are fueling reckless behavior on Wall Street.
  • Stack drew parallels between the current market boom and the dot-com and housing bubbles.
  • See more stories on Insider’s business page.

James Stack warned of rampant speculation across multiple markets, rang the inflation alarm, and urged investors to be careful in a recent MarketWatch interview.

Stack is the founder and CEO of Stack Financial Management, as well as the publisher of the InvesTech Research newsletter. He compared the Federal Reserve’s stimulus efforts to spiking Wall Street’s punchbowl, cautioned houses are more overpriced now than during the mid-2000s housing bubble, and likened the hype around SPACs and NFTs to the dot-com boom.

Stack’s firm takes a “safety-first” approach to investing, paying close attention to market risk and historical trends. It boasted a $1.2 billion stock portfolio at the end of March, which included a $97 million stake in Microsoft, and roughly $50 million stakes in each of Accenture, Cisco, and Walmart.

Here are Stack’s 8 best quotes from the interview, lightly edited and condensed for clarity:

1. “The Fed brought the punchbowl back to the party and, particularly when the pandemic hit, they decided to add more and more alcohol to it. There’s a lot of participants on Wall Street investing like they’re a little bit inebriated.” – describing the impact of the Federal Reserve’s expansionary policies since 2019.

2. “We have more of an upside disparity between housing prices and long-term inflation than we did in the housing bubble in 2005.” – Stack Financial’s housing barometer estimates US house prices are 43% above the long-term inflation trend, exceeding their 35% premium in 2005.

3. “Speculative psychology tends to spill over into multiple asset classes. Stocks are very, very expensive by most historical measures, but we’re also seeing it in real estate, we’ve seen it in cryptocurrencies – bitcoin shot up to $60,000 and now is struggling to stay above $30,000.”

4. “Our housing prices have gone ballistic. It seems that everyone’s quitting their job to become a realtor. It brings back all the memories of 2005-2006.” – describing the local housing market in Flathead Valley, Montana.

5. “Speculative excess is spilling over into all of the new IPOs, the SPACs. We’re raising money and we don’t know what we’re going to do with it. Then we’ve got the new NFTs, digital art – it’s so extreme, it’s almost nonsensical. But it’s not unusual. We saw it in the late 1990s, when companies could go public that had never made a penny. We’re starting to see a lot of that today in the meme stocks favored by new, young traders.”

6. “The bubble is invisible to those inside the bubble. Don’t go to someone investing in NFTs and try to tell them that they’re speculating in a bubble that could be almost worthless. You’re going to get in an argument that you can’t win except in the aftermath.”

7. “We are in one of the most overvalued markets in history and one of the most speculative-excess periods in history, so you don’t have to be fully invested today. If you’re going to invest in today’s market, don’t go out buying the SPACs, or the stocks that have infinite PE ratios, because they have yet to make earnings. I would put higher allocations into those sectors that are going to benefit from, or at least be resilient to, increasing inflation.”

8. “When the Fed does decide to start taking the punchbowl away, growth stocks are where the pains could be felt the greatest. Think ‘safety first,’ walk softly, and carry a comfortable cash reserve.”

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A Reddit forum founder who got banned from Wall Street Bets says the group is ‘tired’ of talking about GameStop – and that they really were behind the silver short-squeeze

Screenshot 2021 03 19 at 13.08.16
Ivan Bayoukhi, founder of WallStreetSilver.


Ivan Bayoukhi, the founder of subreddit Wall Street Silver, told Kitco News this week Wall Street Bets users are tired of talking about GameStop, and they did in fact trigger the silver short-squeeze in January, even though they said at the time this was not the case.

But the notorious subreddit had claimed they were not the ones behind silver’s rally as they were more focused on members buying into GameStop, AMC, and other heavily shorted stocks.

“The Silver Squeeze is a hedge-fund coordinated attack so they can keep fighting the $GME fight,” one user wrote last month.

Bayoukhi, who was among users calling for betting on silver, said one can just scroll back five to six months on the WSB forum to find several silver-related posts. Some posts would even mention the Hunt Brothers who managed to push silver prices from $6 an ounce to over $50 an ounce within a year more than three decades ago, he said.

“We’ve kept track of absolutely everything,” he said. “That’s in our extras section, or the information section on Wall Streets Silver reddit. We literally have a section for Wall Streets Bets posts for silver that they’ve deleted or kept up.”

But anyone attempting to post about silver on WSB, including Bayoukhi, was banned from the community because the majority of them didn’t want focus to stray from GameStop, he said. Still, at least 30 to 40% of the WSB forum loves silver, he said. This indicates there was conflicting opinion among members of the subreddit, with some wanting to continue the GameStop short-squeeze, while others wanted to expand it to silver.

“That’s why most of their users are coming to us for silver, because they’re tired of just talking about one stock all day.”

Shortly after Reddit day traders drove up the prices of GameStop earlier this year, silver prices rocketed to their highest since 2013, driven by messages urging Reddit day traders to buy the metal and hike its price. Some members of the community claimed to not be a part of it and banned posts that mentioned silver.

Bayoukhi compared silver to fiat currencies. When asked why he likes silver, he said traditional currencies aren’t backed by anything and 99% of them have failed historically. On the other hand, silver is used in everyday life, such as in solar panels or industrial goods, has affordability, and works as a real store of value and hedge against inflation, he said.

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Billionaire investor Jeffrey Gundlach warns stocks are hugely overvalued – and amateur traders will worsen the coming crash

Jeffrey Gundlach
Jeffrey Gundlach.

  • Jeffrey Gundlach warned stocks are overvalued and face a brutal downturn.
  • The billionaire investor predicted the stock market will tumble by far more than 15%.
  • The DoubleLine Capital boss also slammed the latest round of US stimulus.
  • See more stories on Insider’s business page.

Billionaire investor Jeffrey Gundlach sounded the alarm on stocks and predicted a painful crash on DoubleLine’s Total Return Webcast last week.

Suggesting the stock market is “anything other than very overvalued versus history is just to be ignorant of all the metrics of valuation,” the DoubleLine Capital boss said.

Gundlach gave that reply when asked whether he agrees with Michael Burry of “The Big Short” fame that markets are in a “speculative bubble” and will suffer a “dramatic and painful” decline. He voiced a similar view, saying stocks would fall much more than 15% when the downturn comes.

The so-called “bond king” predicted that many retail investors will cash out when equities turn south, exacerbating the inevitable correction. “We’ll have a tremendous unwind of a lot of the money that thinks that the stock market is a one-way thing,” he said.

Gundlach also issued a stark warning about federal spending during the pandemic. “We’re pretty clearly in a speculative bubble regarding debt and government activity,” he said.

The DoubleLine boss deployed a wealth of economic data to make his arguments. For example, he pointed to rising trade and budget deficits, depressed consumer confidence, record readings on the “Buffett indicator” and other market gauges, heady price-earnings ratios, and the disconnect between growth, employment, and the stock market.

Gundlach made several calls during the webcast. He expects year-on-year inflation of over 3% in June or July, the dollar to weaken in the coming months, and gold prices to bounce back.

Moreover, the investor predicted the VIX – an index known as the market’s “fear gauge” because it measures investors’ volatility expectations – will surge past 100 for the first time when the crash comes. Lofty valuations and the “amateur aspect of the market with Robinhood” will fuel volatility, he said.

Gundlach also criticized President Biden’s $1.9 trillion stimulus bill, which was signed into law last week. He called it “shocking” that couples with a household income of $150,000 and three children are set to receive $6,000 in federal support.

Stimulus initiatives are “cooking all of us frogs in a pot,” he said, comparing them to “monetization” programs where governments fund themselves by printing money instead of collecting taxes or borrowing.

“The biggest problem is that we’ve become totally addicted to these stimulus programs,” Gundlach said. He argued that the government is training people to rely on federal support, and could struggle to turn off the tap as a result.

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Investor Chris Sacca highlights the key risks of betting on startups – and offers 3 tips for amateurs

chris sacca
Chris Sacca.

  • Chris Sacca highlighted the risks to amateur investors of backing startups.
  • The billionaire venture capitalist pointed out that professionals often lose money.
  • Sacca advised casual investors to spread their bets, avoid debt, and expect to fail.
  • See more stories on Insider’s business page.

Investor Chris Sacca praised new rules allowing more people to bet on startups in a Twitter thread this week. However, he told amateur investors to exercise caution given the significant risks.

“Mom & Pop shouldn’t be shut out anymore,” Sacca said, after regulators expanded the definition of “accredited investor” and loosened restrictions on how much people can invest in crowdfunding rounds.

Yet early-stage companies rarely succeed, the Lowercase Capital founder and former “Shark Tank” star warned.

“Most startups shit the bed,” he said. “Don’t invest money that you can’t afford to lose.”

Sacca – an early investor in Uber, Twitter, and Instagram – pointed out professional investors back dozens of businesses to boost their chances of finding a winner.

“The real danger is when everyday folks put money into one of these companies, but can’t afford to place multiple bets,” he said. “Letting it all ride on one venture stacks the odds against you.”

Amateurs shouldn’t get cocky and expect to outsmart the pros either, Sacca cautioned.

“I’ve shattered the market, put up silly numbers, and have an insanely high hit-rate,” he said. “Yet I’m here to tell you that we still have companies go to zero.”

Angel investors and venture capitalists stomach losses even though they can help their portfolio companies find a buyer, execute a turnaround, or raise more money, Sacca continued.

“We have the paddles and can yell ‘Clear!” he said. “And yet, we still have patients flatline on the table.”

Sacca dismissed the idea that betting on startups should be “reserved for the rich.” Yet he felt compelled to offer some tips to help casual investors avoid being the “inevitable horror story.”

“Only invest what you can lose. Don’t borrow,” he said. “Spread it around multiple investments. And, overall, assume you are going to lose your money and be pleasantly surprised if you get back more than you put in. Good luck.”

Sacca offered similar advice to day traders earlier this year. He warned them not to borrow money to make trades, highlighting his experience of turning his student loans into $12 million, only to wake up $4 million in debt after his debts soured.

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Robinhood CEO says investing ‘should be as ubiquitous as shopping online’ and should not be viewed as gambling

Vlad Tenev Robinhood

Robinhood Markets CEO Vlad Tenev defended the mission of his trading platform, which seeks to “democratize finance for all” amid backlash from lawmakers, regulators, and Wall Street firms blaming the mobile app for luring inexperienced investors and “gamifying” the stock market.

“Investing should be as ubiquitous as shopping online,” Tenev told Bloomberg. “It should just be something that people do.”

The Menlo Park, California-based company has faced scrutiny for its role at the center of the GameStop frenzy in January. This includes complaints that the mobile app used “aggressive” tactics to lure young and inexperienced investors with commission-free trades.

A five-hour congressional hearing in front of the House Financial Services Committee was held on February 18, scrutinizing the role the company played.

“This is what I signed up for,” Tenev said. “Any time you’re causing change in society and kind of upending the status quo, it’s probably not going to be the most comfortable process.”

The 34-year-old founder also rebuffed comments from various experts on the addictive nature of trading apps like Robinhood. The app has attracted over 13 million users since 2013, many of whom are younger retail traders.

“I reject the idea that investing in the US capital markets is gambling,” Tenev said. “We’d be happy to have the conversation, but of course we understand that investing is a serious thing.”

“The facts will come out and it will bear out that Robinhood is a customer-focused company that’s operating with the highest standards of integrity,” Tenev said.

In the February hearing, Tenev maintained that Robinhood has created opportunities for a new generation of investors. The CEO told lawmakers that the assets of his platform’s users have collectively grown by more than $35 billion, a claim challenged by some, including Rep. Jim Himes.

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GameStop stock surges 19% as retail investors pile into meme stocks again

gamestop line

GameStop shares jumped as much as 19% on Wednesday, as retail investors piled into meme stocks once again.

The video-game retailer’s stock price soared as high as $294 – a 550% increase in the space of 11 trading days. A key catalyst for the rally was the news that activist investor and Chewy cofounder Ryan Cohen will spearhead GameStop’s e-commerce transformation.

Several other stocks that are fan favorites on Reddit’s Wall Street Bets forum posted gains on Wednesday. AMC Entertainment shares rose as much as 15%, Express gained 30%, and Koss jumped 65%.

Despite their recent gains, GameStop shares are still down from their peak this year. They skyrocketed more than 2,500% in January, from about $17 at the start of the year to an intraday high of $483 on January 28.

The GameStop short squeeze in January hammered short-sellers, rattled financial markets, and prompted Congressional hearings to sort through what happened.

The event also sparked criticism from top investors. Warren Buffett’s business partner, Charlie Munger, likened it to people gambling on racehorses. Similarly, “The Big Short” investor and former GameStop shareholder Michael Burry denounced the buying frenzy as “insane” and “dangerous.”

Here’s a chart showing the sharp increases and declines in GameStop’s stock price this year:

GMEstockchart_100321
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GameStop extends 2-day surge to 278% as Reddit meme stocks find renewed life

GettyImages 1230960416

GameStop surged as much as 85% on Thursday after the stock more than doubled the previous day. The two-day move of 278% has been part of a broader surge for so-called meme stocks popular on Reddit.

The stock rose to an intraday high of $170 per share at of 9:35 a.m. ET after closing 104% higher at $91.71 on Wednesday. Among other Reddit stocks, AMC Entertainment rose 21%, Express Inc climbed 22%, and Koss gained 90% at intraday highs.

GameStop’s spike was spurred by a spike in final hour of regular market hours on Wednesday, after a session that saw trading in the stock halt multiple times due to volatility. The video-game retailer came back into focus after it announced the resignation of its chief financial officer, Jim Bell.

Sources told Insider Bell didn’t actually resign voluntarily, but was forced out by the board as part of a push by activist investor Ryan Cohen. The board aims to make way for an executive that is more in line with Cohen’s strategic vision.

Cohen’s addition to the board in early January, along with his boosted investment stake in the company, fueled the first flurry of moves in GameStop.

After GameStop’s stock doubled, Reddit’s website suffered an hour-long outage in after hours-trading. It is unclear whether the two instances were related, but the Wall Street Bets subreddit page is known to be a popular forum for day traders that recently triggered a rally in multiple shorted stocks.

The clearinghouse that forced Robinhood to restrict trading in volatile stocks because of higher margin requirements published a whitepaper on Wednesday that laid grounds for accelerating the stock-settlement process.  The Depository Trust & Clearing Corporation proposed shortening the settlement cycle for US equities to one day from two, prompting some renewed interest from the retail crowd on Reddit.

Read more: GOLDMAN SACHS: These 40 heavily shorted stocks could be the next GameStop if retail traders target them – and the group has already nearly doubled over the past 3 months

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