Buffett says the market is ‘almost entirely a casino’ as it rallied in recent years

Warren Buffett said on Saturday that US financial markets had become “almost entirely a casino” as millions of new traders flooded the financial system during the coronavirus pandemic.

The billionaire and CEO of Berkshire Hathaway, speaking in Omaha to thousands of shareholders gathered for the company’s annual meeting, added that Wall Street had “encouraged” “extraordinary” activity because the money is in the stock turnover.

The comments follow a dramatic shift in the way people around the world interact with their finances. Americans have opened millions of brokerage accounts since the start of the pandemic, with many turning to options markets to bet on the rapid rise or fall of companies like Apple and Tesla.

Buffett and his consigliere, Berkshire Vice Chairman Charlie Munger, credited the company’s ability to make big bets this year to the rapid pace of trading and the fact that many holders of some shares were not long-term investors.

In the first quarter, the company spent $51.1 billion buying shares of companies, including big bets on oil majors Chevron and Occidental Petroleum. Buffett said it was “incredible” that Berkshire could have bought more than 14 percent of Occidental in a matter of weeks.

“But the overwhelmingly large companies in America became poker chips and people were buying and selling like three-day calls, two-day calls,” he said, referring to the derivatives that became the instrument of choice for many traders. new days on the market. “Wall Street makes money one way or another, picking up the crumbs that fall from the table of capitalism.”

There are signs that much of the enthusiasm that propelled US stocks to record highs last year has evaporated. Trading in penny stocks has tanked and the amount of borrowing investors are making to trade has fallen, according to US stockbroker watchdog Finra.

Munger specifically took aim at Robinhood, the online brokerage firm that brought many Americans to the financial markets but whose valuation has plunged from nearly $60 billion last August to $8.5 billion last week due to a slowdown in commercial activity.

“Short-term bets and large commissions. . . it was disgusting,” she said. “Now it is falling apart. God is becoming just.”

Saturday marks the first time since 2019 that Berkshire shareholders have had the chance to hear directly from the billionaire investor and the company’s top management in person.

There were questions ahead of the annual meeting, often referred to as Woodstock for capitalists, about whether the pandemic would affect attendance levels. Managers at several Berkshire subsidiaries said the turnout at the Omaha convention center on Friday, a day when shareholders can buy Fruit of the Loom underwear or get discounted housewares at Pampered Chef, had been lower than in recent memory.

But when Buffett opened the meeting, with his usual one-word phrase, “OK,” a packed audience at the CHI Health Center rose to its feet.

Buffett and Munger fielded questions for more than five hours and were joined in the morning by Berkshire vice chairmen Ajit Jain and Greg Abel, Buffett’s heir apparent. While Buffett spoke about the effects of inflation, he steered clear of many of the issues investors expected him to address. These included the strength of the US economy, the effects of a possible slowdown in China, and the implications of the Russian invasion of Ukraine.

Shareholder proposals that would require the company to make environmental and diversity disclosures, as well as one that sought to split the role of chairman and CEO at the company, failed.

The company reported earlier on Saturday that its operating profit was little changed from a year earlier, with strength from its BNSF rail and manufacturing units offsetting a sharp drop in profitability from its insurance business.

Overall, net income more than halved from a year earlier to $5.5 billion. The drop was mainly due to changes in the value of his investments, which Buffett decries as a “generally meaningless” metric given that his stock portfolio has dwarfed the value of $390 billion.

Buffett was questioned about the surge in recent stock buying after lamenting the lack of attractive investments in his annual letter to investors in February. He said that during the market sell-off this year, “some stocks became very interesting for us and we also spent a lot of money.”

But he added that the mood at the company’s headquarters had become more “lethargic,” particularly compared to the pace seen between mid-February and mid-March, when it spent more than $40 billion on stock.

Berkshire used a sizable chunk of its cash pile to execute those trades, with the value of its holdings of cash and Treasury bills falling to $106 billion, its lowest level since 2018.

Buffett said the company would always keep a sizable amount of cash on hand, as its insurance operations must be ready for big claims in the event of a catastrophe. He added that he wanted Berkshire Hathaway to be “in a position to operate if the economy stops and that can always happen.”

“We had a lot of money on March 20,” he said, referring to the days when the S&P 500 hit its lowest levels of the pandemic. “But we weren’t very, very far from something being a repeat of 2008 or even worse.”

Wise words from Omaha

buffett on inflation

“Inflation also cheats the bond investor. Scam the person who keeps your money under the mattress. He scams almost everyone.”

“You print lots of money and the money will be worth less. Not worthless.

Buffett on the Federal Reserve

“In my book, Jay Powell is the hero. . . if he hadn’t done anything, it would be very easy to do what you would call thumb sucking. The world would have collapsed around them and no one would have blamed them.”

Buffett on political partisanship

“People are now behaving a bit more tribal than ever before. . . It can get very dangerous when one group of people says 2 + 2 = 5 and another says 2 + 2 = 3.”

”The interesting thing for me, partly because of my age, but really I think just from memory, the last time the country was seen as tribal was when I was a child and Roosevelt was [president].”

Munger on a proposal to split Berkshire’s chairman and CEO roles

“For me it is the most ridiculous criticism I have ever heard. It’s like Odysseus came back from winning the Battle of Troy and some guy said, ‘I don’t like the way you held that spear when you won.

Munger on investing in China

“There is no question about the fact that the Chinese government has worried US investors. . in recent months and years and did so in previous periods. There has been some tension. It has affected Chinese stocks.”

Munger in bitcoin

“In my life I try to avoid things that are stupid and evil and that make me look bad compared to another person. And bitcoin does all three.”

Ajit Jain, Vice President of Berkshire, on the threat of nuclear attacks

“The additional thing that concerns me about the nuclear situation is my lack of ability to really estimate what our actual exposure is in the event of a nuclear event.”

“When it comes to nuclear power, I give up.”

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