Warren Buffett said on Saturday US financial markets had “turned almost entirely into a casino” as millions of new traders poured into the financial system during the pandemic.
The billionaire CEO of Berkshire Hathaway, speaking in Omaha to thousands of shareholders gathered for the company’s annual meeting, added that “extraordinary” activity “was encouraged by Wall Street because the money is in selling shares.” “.
The comments follow a dramatic change in the way people around the world manage their finances. Americans have opened millions of brokerage accounts since the pandemic began, and many are turning to options markets to bet on the rapid rise or fall of companies like Apple and Tesla.
Buffett and his advisor, Berkshire Vice Chairman Charlie Munger, credited the company’s ability to make big bets of its own this year to the rapid pace of trading and the fact that many holders of some stocks were not long-term investors.
In the first quarter, the company spent $51.1 billion buying shares in companies, including big bets on oil majors Chevron and Occidental Petroleum. Buffett said it’s “amazing” that Berkshire was able to buy more than 14 percent of Occidental in just a few weeks.
“But the overwhelmingly large companies in America became poker chips, and people were buying and selling like 3-day calls, 2-day calls,” he said, referring to derivatives, which became the tool of choice for many new day traders in the market. “One way or another, Wall Street makes money by catching the crumbs that fall off the table of capitalism.”
There are signs that much of the enthusiasm that pumped US stocks to record levels over the past year has evaporated. Trading in penny stocks has collapsed and investor borrowing to trade has fallen, according to US broker-dealer regulator Finra.
Munger specifically targeted Robinhood, the online brokerage that brought many Americans to financial markets but whose valuation has fallen from nearly $60 billion last August to $8.5 billion last week as trading activity slows to have.
“Short-Term Gambling and Big Commissions . . . it was disgusting,” he said. “Now it’s unraveling. God is just.”
On Saturday, Berkshire shareholders had the opportunity to hear directly from the billionaire investor and the company’s top management for the first time since 2019.
Ahead of the annual gathering, often referred to as the Woodstock for capitalists, there were questions about whether the pandemic would affect attendance. Executives at several Berkshire affiliates said turnout at the Omaha convention center on Friday, a day when shareholders can buy Fruit of the Loom underwear or get discounted housewares at The Pampered Chef, was lower than in recent years.
But when Buffett opened the meeting with his usual one-word line, “OK,” a packed audience rose at the CHI Health Center.
Investors will have to wait a few more hours before hearing the results of actual day-to-day operations — whether shareholders managed to push forward proposals that would require Berkshire to disclose the environmental impacts of its dozens of subsidiaries, or split the chairman and chief executive officer Title. Analysts believe the proposals will fail as Buffett owns prime voting stock.
The company earlier on Saturday reported that its operating results were little changed from a year earlier, with strength in its BNSF railroad and manufacturing units offsetting a sharp decline in the profitability of its insurance business.
Overall, net income more than halved year-on-year to $5.5 billion. The decline was primarily due to changes in the value of its investments, which Buffett decries as a “generally meaningless” metric since his stock portfolio has eclipsed a $390 billion figure.
Buffett has been questioned about the surge in recent stock buying after lamenting the lack of compelling investments in his annual letter to investors in February. He said that during the market’s sell-off this year, “a few stocks have become very interesting to us and we’ve also spent a lot of money.”
But he added that sentiment at corporate headquarters has become “more lethargic,” especially compared to the pace recorded between mid-February and mid-March when the company spent more than $40 billion on shares.
Berkshire withdrew a significant portion of its cash holdings to execute these deals, with the value of its holdings of cash and Treasury bills falling to $106 billion, its lowest level since 2018.
Buffett said the company always keeps a significant amount of cash on hand because its insurance business needs to be prepared for large losses in the event of a catastrophe. He added that he wanted Berkshire Hathaway “to be able to operate when the economy grinds to a halt, 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 point during the pandemic. “But we weren’t very, very far from something being a repeat of 2008 or worse.”
Words of wisdom from Omaha
Buffett on inflation
“Inflation also cheats the bond investor. It cheats the person who keeps their cash under the mattress. It cheats almost everyone.”
“You print a lot of money, and money will be worth less. Not worthless.”
Buffett on the Fed
“In my book, Jay Powell is the hero. . . If he hadn’t done anything he would, it would be very easy to do what you would call thumb sucking. The world would have collapsed around it and no one would have blamed them.”
Buffett on political partisanship
“People are acting a little more tribal now than they’ve been for a while. . . It can be very dangerous if one group says 2 + 2 = 5 and another 2 + 2 = 3.”
“What’s interesting to me is partly because of my age, but I actually think just from memory that the last time the country was seen as this tribe was when I was a kid and Roosevelt was [president].”
Munger on a proposal to split the roles of Berkshire’s chairman and CEO
“To me, that’s the most ridiculous criticism I’ve ever heard. It’s like Odysseus comes back after winning the battle of Troy and some guy says, ‘I don’t like the way you held that spear when you won.’”
Munger on investing in China
“There is no question that the Chinese government has unsettled US investors. . . in recent months and years and in previous periods. There has been some tension. Chinese stocks are affected.”
Munch on Bitcoin
“In my life, I try to avoid things that are stupid, evil, and make me look bad in comparison to someone else. And Bitcoin does all three.”
Berkshire Vice Chairman Ajit Jain on the threat of nuclear attacks
“What worries me further about the nuclear situation is my inability to truly assess our actual exposure in the event of a nuclear event.”
“When it comes to nuclear power, I surrender.”
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