Don’t mock the wisdom of Charlie Munger.
That’s the message of a research report released Wednesday by the founder of investment management firm Richard Bernstein Advisors.
Munger—Warren Buffett’s nonagenarian business partner—faced blowback on social media after he compared the frenzy of trading by inexperienced investors on Robinhood Markets to gamblers using the stock market to place bets like they would on racehorses. He also warned that it wouldn’t end well.
Munger’s comments “were derided as those made by an old guy who does not understand today’s more modern markets,” Bernstein wrote, but stock market history backs up Munger’s point about a short-term focus being harmful to one’s wealth, particularly when chasing popular momentum stocks.
“The probability of success when day trading is only slightly better than when flipping a coin,” Bernstein noted. “There has historically been about a 54/46 chance of making money when holding stocks for a day versus 50/50 from coin flipping.”
Robinhood, which offers no-fee trades on an app that has drawn millions of new customers over the past year, responded to Munger’s comments last week by saying they overlook the cultural shift taking place among investors.
But Munger is not the only person who has taken aim at the brokerage. Robinhood has faced criticism from lawmakers and the public since it clamped down on trading of so-called meme stocks such as GameStop Corp. in late January following a surge in such shares largely driven by day traders.
Some investors who had bought at the peak of the trading frenzy lost their money when the mania subsided and the stocks fell back to earth.
The odds of losing money in the markets decline as one’s time horizon expands, and time is an “effective risk reduction tool,” except when investing in gold or commodities, Bernstein wrote in its report.
This article was provided by Bloomberg News.