Warren Buffett said on Saturday that US financial markets had become “almost totally casino-like” as millions of new traders flooded into the financial system during the pandemic.
The billionaire and chief executive of Berkshire Hathaway, speaking in Omaha to thousands of shareholders gathered for the company’s annual meeting, added that the “extraordinary” activity had been “encouraged by Wall Street because the money is in the turnover of shares”.
The comments follow a sea change in the way people around the world interact with their finances. Americans have opened millions of brokerage accounts since the pandemic began, with many turning to the options markets to bet on the rapid rise or fall of companies like Apple and Tesla.
Buffett and his adviser, Berkshire Vice Chairman Charlie Munger, attributed the rapid pace of trading and the fact that many holders of certain stocks were not long-term investors for the company’s ability to make its own big bets this year.
In the first quarter, the company spent $51.1 billion buying stocks of companies, including big bets on oil majors Chevron and Occidental Petroleum. Buffett said it was “incredible” that Berkshire was able to buy more than 14% of Occidental in a matter of weeks.
“But the overwhelming majority of big American businesses became poker chips and people were buying and selling like three-day calls, two-day calls,” he said, referring to derivatives that are become the instrument of choice for many new day traders in the market. “Wall Street makes money one way or another, picking up the crumbs that fall off 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 collapsed and the amount of borrowing investors take out to trade has fallen, according to US watchdog Finra.
Munger was specifically targeting Robinhood, the online brokerage that has brought many Americans to the financial markets but whose valuation has fallen from nearly $60 billion last August to $8.5 billion last week as business business has slowed.
“Short-term play and big commissions . . . it was disgusting,” he said. “Now it’s unraveling. God is getting fair.
Saturday is the first time since 2019 that Berkshire shareholders have had the chance to hear directly from the billionaire investor and the company’s senior management in person.
There were questions ahead of the annual meeting, often called Woodstock for capitalists, about whether the pandemic would affect attendance levels. Officials from several Berkshire subsidiaries said turnout at the Omaha convention center on Friday, a day when shareholders can buy Fruit of the Loom underwear or get discounted home goods at The Pampered Chef, had been lower than in recent memory.
But when Buffett opened the meeting, with his usual one-word, “OK” retort, a large audience at the CHI Health Center stood up.
Buffett and Munger answered questions for more than five hours and were joined in the morning by Berkshire vice presidents Ajit Jain and Greg Abel, Buffett’s heir apparent. As Buffett talked about the effects of inflation, he strayed from many of the topics investors hoped he would 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 disclose environmental and diversity information, as well as those that sought to split the role of chairman and chief executive of the company, have all failed.
The company said earlier on Saturday that its operating profits were little changed from a year earlier, with strength in its railroad and BNSF manufacturing units offsetting a sharp decline in profitability in its insurance business. .
Overall, net income more than halved from a year earlier to $5.5 billion. The drop was primarily due to changes in the value of his investments, which Buffett laments as a “generally meaningless” measure given his stock portfolio eclipsed $390 billion in value.
Buffett was asked 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, “a few stocks became very attractive to us and we also spent a lot of money.”
But he added that the mood at the company’s headquarters had become more “lethargic”, especially compared to the pace recorded between mid-February and mid-March when it spent more than $40 billion in shares. .
Berkshire drew down a significant portion of its cash to execute those deals, with the value of its cash and treasury bill holdings falling to $106 billion, its lowest level since 2018.
Buffett said the company will always retain a significant amount of cash, given its insurance operations need to be prepared for large claims in the event of a disaster. He added that he wanted Berkshire Hathaway to be “able to operate if the economy shuts down and that can still happen.”
“We had a lot of money on March 20,” he said, referring to the days when the S&P 500 hit pandemic lows. “But we weren’t very, very far from having anything like a repeat of 2008 or even worse.”
Omaha Wise Words
Buffet on inflation
“Inflation also defrauds the bond investor. He scams the person who keeps his money under the mattress. It scams almost everyone.
“You print a lot of money and the 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 be, it would be very easy to do what you would call sucking his thumb. The world would have fallen around her and no one would have blamed them.
Buffett on political partisanship
“People are behaving a little more tribally now than they have for some time. . . It can get very dangerous when one group of people says 2+2=5 and another says 2+ 2=3.”
“What interests me, partly because of my age, but I actually think that, from memory, the last time the country was considered this tribe was when I was a child and Roosevelt was [president].”
Munger on proposal to split Berkshire chairman and CEO roles
“To me, that’s the most ridiculous criticism I’ve ever heard. It’s like Odysseus coming back after winning the Battle of Troy and some guy saying, “I don’t like the way you held that spear when you won.”
Munger on investing in China
“There is no doubt that the Chinese government has worried American investors. . . in recent months and years and have done so in earlier periods. There were tensions. This affected Chinese stocks.
Munger on bitcoin
“In my life, I try to avoid stupid and evil things and make myself look bad compared to someone else. And bitcoin does all three.
Berkshire Vice Chairman Ajit Jain on the threat of nuclear attacks
“The additional thing that worries me about the nuclear situation is my inability to really estimate what our actual exposure is in the event of a nuclear event.”
“When it comes to nuclear, I sort of surrender.”