How Warren Buffett was beaten by millennial Robinhood traders with stocks, bitcoin, gold

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Low-cost trading platforms like Robinhood have created a game-changing paradigm where young investors can now facilitate price discovery and trade with minimal cost. The end-result is a new breed of traders and investors, with some having performances better than Warren Buffett’s Berkshire Hathaway, said Frank Holmes, CEO of U.S. Global Investors.

“What’s happened over the past 30 years is that incredible regulations have gotten rid of professional market making. [There’s] no more capital. Now it’s all gone to quants, like Citadel Capital, like basically providing in a digital work market making. What that’s done is basically enable a fintech company which everyone hears of now, and the other one is called Acorn. Robinhood and Acorn are game changers because they allow young investors to come in and play in the game,” Holmes told Kitco News.

Holmes noted that Robinhood has gained popularity due to its low costs compared to traditional brokerages, as well as the platform’s superior user experience.

One advantage that millennial traders have now over investors of previous generations is the ease of access to information.

“They’re using the internet, they’re using history, they’re quick to look at previous data. When I was just going into business, you got a chartbook once a week. You get a chart now by the minute,” he said.

These tools have contributed to some success stories of millennial traders making profitable trades.

“What we found with the JETS (U.S. Global Jets) ETF, is record inflows…we saw 25,000 millennial investors buy before Warren Buffett became negative on the industry. A week after he came out that he was negative, the airlines then surged 50%,” he said.

Young traders have also been early investors in gold this year, Holmes noted. According to Robintrack, a website that tracked the number of Robinhood users on tradeable securities, young investors on the trading platform accumulated record levels of gold-backed exchange traded funds and gold mining stocks this year as the price of gold climbed.

On gold investments, Holmes said that in a bull market, investors will gain to buy gold mining companies due to the inherent leverage of the investment; mining stocks usually outperform the bullion in a bull market.

“When you’re in a secular gold market in gold, which we’re in, you will make more money on gold stocks than you will on only bullion. You’ll have more volatility, you’ll have more euphoria depression periods, but you will make much more money because you will get a multiple for good success,” he said. “Cash flow companies, these companies are going to trade at 13 to 15 times cash flow. Bullion’s not going to get that multiple.”