Buffett says the market is “almost a casino” as it has rebounded in recent years 2022-04-30 14:52:49


Warren Buffett On Saturday, she said US financial markets had become a “near-total casino” as millions of new traders flocked to the financial system during the pandemic.

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

The comments come after a radical shift in how 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 advisor, Berkshire vice president Charlie Munger, credited the fast pace of trading and the fact that many owners of some stocks weren’t long-term investors for the company’s ability to place their big bets this year.

In the first quarter, the company spent $51.1 billion to buy shares of companies, including big bets on oil majors Chevron and Occidental Petroleum. Buffett said it was “amazing” that Berkshire had been able to purchase more than 14 per cent of Occidental in a matter of weeks.

Line chart of performance since the start of 2020 (%) showing Berkshire shares have taken the lead in broad terms in the market

“But the big companies in America in a big way, became poker chips and people were buying and selling like three-day calls and two-day calls,” he said, referring to derivatives that became the tool of choice for many new traders in the market. “Wall Street makes money one way or another, catching the crumbs that fall off the table of capitalism.”

There are signs that much of the enthusiasm that drove US stocks to record highs last year has evaporated. Small-cap trading has collapsed and the amount of borrowing investors are taking to trade has plummeted, according to US brokerage and dealer watchdog Finra.

Monger specifically targeted Robinhood, the online brokerage that has introduced many Americans to the financial markets but whose valuation has fallen from about $60 billion last August to $8.5 billion last week as trading activity slows.

“The short term gambling and the big commissions… it was disgusting.” “It’s breaking up now. God is doing justice.”

Saturday is the first time since 2019 that Berkshire shareholders have had the opportunity 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. Turnout at the Omaha Convention Center on Friday, the day shareholders can buy Fruit of the Loom underwear or get discounted home goods at The Pampered Chef, was lower than in recent memory, executives at several Berkshire subsidiaries said. .

But when Buffett opened the meeting, in his usual one-word line, “Okay,” the crowded audience at CHI Health Center stood on their feet.

Investors have several more hours to wait before they hear the outcome of the day’s actual business — whether shareholders have successfully made proposals that would require Berkshire to disclose the environmental impact of dozens of its subsidiaries or whether they will separate the president from the CEO title. Analysts predict that the proposals will fail given Buffett’s ownership of the high-class voting shares.

The company said earlier on Saturday that its operating profit was little changed from the previous year, as strength in BNSF rail and manufacturing units offset the sharp decline in profitability from its insurance business.

Overall, net income more than halved from the previous year to $5.5 billion. The decline was primarily due to changes in the value of its investments, which Buffett regrets as a “generally meaningless” metric given that his portfolio of stocks has topped $390 billion in value.

Buffett was questioned about the recent stock-buying boom 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, “a few stocks got a lot of interest for us and we spent a lot of money.”

But he added that the mood at corporate headquarters had become more “sluggish,” particularly compared to the pace recorded between mid-February and mid-March when it spent more than $40 billion on stocks.

Berkshire pulled a large chunk of its cash pile to execute those deals, as the value of its cash and Treasury holdings plunged to $106 billion, its lowest level since 2018.

Buffett said the company will always keep a large amount of cash on hand, since its insurance operations must be prepared for large claims in the event of a disaster. He added that he wanted Berkshire Hathaway “to be in a position to operate if the economy stalls 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 epidemic lows. “But we weren’t very, very far from repeating something for 2008 or even worse.”

Wise words from Omaha

Buffett on inflation

Inflation deceives the bond investor, too. A person who keeps his money under the mattress is deceived. It deceives almost everyone.”

“You are printing a lot of money and the money will be worth less. It is worthless.”

Buffett on the Fed

“In my book Jay Powell is the hero . . . if he did nothing, it would be very easy to do what you call thumb sucking. The world would have fallen around him and no one would blame them.”

Buffett on political partisanship

“People now behave somewhat more tribally than they have been at some time . . . it can become very dangerous when a group of people says 2 + 2 = 5 and someone says 2 + 2 = 3.”

“The thing that’s interesting to me, partly because of my age, but I think it’s only a 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 position of Berkshire’s president and CEO’s roles

“To me, this is the most ridiculous criticism I’ve ever heard in my life. It’s as if Odysseus is going to come back from winning the Battle of Troy and someone will say, ‘I don’t like the way you held that spear when you won’.”

Munger to invest in China

There is no doubt in the fact that the government of China has upset investors from the United States. . . In recent months and years I did in earlier periods. There was some tension. It affected Chinese stocks.”

Monger on Bitcoin

“In my life I try to avoid things that are stupid, evil, and make me look bad compared to someone else. Bitcoin does all three.”

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

“An additional thing that worries me about the nuclear situation is my lack of ability to estimate our true exposure in the event of a nuclear event.”

“When it comes to nuclear power, I kind of give in.”