Berkshire Hathaway CEO Warren Buffett criticized Wall Street for encouraging speculative behavior in the stock market, effectively turning it into a “gambling room.”
Buffett, 91, spoke at length during his annual meeting of shareholders on Saturday about one of his favorite targets for criticism: investment banks and brokerage houses.
“Wall Street makes money, one way or another, by catching the crumbs that fall from the table of capitalism,” Buffett said. “They don’t make money unless people do things, and they get a piece of it. They make a lot more money when people play than when they invest.”
Buffett lamented that large American companies have “become poker chips” for market speculation. He cited the skyrocketing use of call options and said that brokers make more money on these bets than on a simple investment.
Still, the situation may result in market dislocations that give Berkshire Hathaway a chance, he said. Buffett said Berkshire spent an astonishing $41 billion on stock in the first quarter, freeing up his company’s treasury of cash after an extended lull. Some $7 billion went to buy shares of Occidental, raising its stake to more than 14% of the oil producer’s shares.
“That’s why the markets do crazy things and occasionally Berkshire gets a chance to do something,” Buffett said.
“It’s almost a speculation mania,” chimed in Charlie Munger, 98, a longtime Buffett partner and vice chairman of Berkshire Hathaway.
“We have people who know nothing about stocks being advised by brokers who know even less,” Munger said. “It’s an unbelievable and crazy situation. I don’t think any smart country wants this outcome. Why would you want your country’s stocks to be traded in a casino?”
Retail traders flooded the stock market during the pandemic, driving stock prices to record highs. Last year, the frenzy was further fueled by meme-inspired trading on Reddit message boards. But the stock market has turned around this year, putting many of those new home traders in the red. The Nasdaq Composite, which has many of the favorite names of small traders, is in a bear market, down more than 23% from its peak after a drop in April.
Warren Buffett has a long history of mocking investment bankers and their institutions, saying they encourage mergers and spin-offs to make a profit, rather than improve companies.
He generally avoids investment bankers for his acquisitions, calling them expensive “money shufflers.” Buffett’s $848.02 per share offer for Alleghany insurer reportedly excludes Goldman’s advisory fee.
Earlier in the session, he noted that Berkshire would always be cash-rich and, in times of need, would be “better than banks” at extending lines of credit to businesses. An audience member made an inaudible comment as he spoke.
“Was it a banker yelling?” Buffett joked.
(Follow live updates and a live broadcast of the annual meeting here.)