Buffett says the market is “almost entirely a casino” as it has grown in recent years

Warren Buffett said on Saturday that the US financial markets had become “almost a casino in total” as millions of new traders flocked to the financial system during the pandemic.

The billionaire and CEO of Berkshire Hathaway, who spoke in Omaha to thousands of shareholders gathered for the company’s annual meeting, added that “extraordinary” activity had been “encouraged by Wall Street because the money is in trading shares”.

The comments follow a dramatic shift in how people around the world interact with their economy. Americans have opened millions of brokerage accounts since the start of the pandemic, and many have turned to option markets to focus on rapid growth or decline in companies such as Apple and Tesla.

Buffett and his adviser, Berkshire deputy Charlie Munger, credited the rapid pace of trading and the fact that many owners of some shares were not long-term investors for the company̵[ads1]7;s ability to make its own big bets this year.

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

Line chart of performance since the beginning of 2020 (%) showing that Berkshire's share has taken the lead across the broad market

“But overwhelmingly large companies in America, they became poker chips and people bought and sold as three-day talks, two-day talks,” he said, referring to derivatives that became the instrument of choice for many new day traders in the market. “Wall Street makes money somehow, and catches the crumbs that fall from the table of capitalism.”

There are signs that much of the enthusiasm that pumped US stocks to records last year has disappeared. Trading in penny stocks has collapsed and the amount of loans investors take to trade has fallen, according to the US broker-dealer’s watchdog Finra.

Munger specifically targeted Robinhood, the online brokerage house that led many Americans to the financial markets, but whose value has fallen from nearly $ 60 billion in August to $ 8.5 billion last week as trading activity has slowed.

¬ęShort-term gambling and large commissions. . . it was disgusting, he said. “It simply came to our notice then. God is just. “

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 top management in person.

There were questions before the annual meeting, often referred to as Woodstock for capitalists, about whether the pandemic would affect the level of attendance. Managers at several Berkshire subsidiaries said attendance at the Omaha Convention Center on Friday, a day when shareholders can buy Fruit of the Loom lingerie or get a discount on home goods at The Pampered Chef, had been lower than in recent memory.

But when Buffett opened the meeting with his usual one-word series “OK,” a packed crowd at the CHI Health Center stood up.

Buffett and Munger asked questions for more than five hours and were joined in the morning by Berkshire deputies Ajit Jain and Greg Abel, Buffett’s heir. While Buffett talked about the effects of inflation, he steered away from many of the topics investors had hoped he would address. These included the strength of the US economy, the effect of a possible downturn in China and the implications of the Russian invasion of Ukraine.

Shareholder proposals that would require the company to disclose environmental and diversity revelations, as well as one that tried to divide the company’s CEO and CEO, failed.

Earlier on Saturday, the company reported that operating revenues had changed little from the previous year, with strength from the BNSF railway and production units offsetting a sharp fall in profitability from the insurance business.

In total, net income more than halved from the previous year to $ 5.5 billion. The fall was primarily due to changes in the value of investments, which Buffett regrets as a “generally meaningless” calculation given that the equity portfolio has exceeded $ 390 billion in value.

Buffett was questioned over the flow of recent stock purchases after lamenting the lack of appealing investment in his annual letter to investors in February. He said that during the market sale this year, a few “few shares became very interesting to us, and we also spent a lot of money”.

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

Berkshire pulled down a significant portion of its cash pile to execute these trades, with the value of its holdings of cash and treasury bills falling to $ 106 billion, the lowest level since 2018.

Buffett said the company will always have a significant amount of cash on hand, given that the insurance business must be prepared for major damages in the event of a disaster. He added that he wanted Berkshire Hathaway to be “in a position to operate if the economy stops and it can always happen”.

“We had a lot of money on March 20,” he said, referring to the days when the S&P 500 reached its lowest levels of the pandemic. “But we were not very, very far away from something repeating 2008 or worse.”

Show words from Omaha

Buffett on inflation

“Inflation also scams the bond investor. It scams the person who keeps their cash under the mattress. It scams almost everyone.”

“You print a lot of money and money is going to be less valuable. Not worthless. “

Buffett at the Fed

“In my book, Jay Powell is the hero. . . if he had not done something he would have been there, it would have been very easy to do what you would call thumb sucking. The world would have fallen around it and no one would have blamed them. “

Buffett on political bias

“People are now behaving somewhat more tribally than they have in some time… It can be very dangerous when a group of people say 2 + 2 = 5 and one says 2 +2 = 3.”

“It’s interesting to me, partly because of my age, but I actually think that just from the memory that the last time the country was seen as this tribe was when I was little and Roosevelt was [president]. “

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

“For me it is the most ridiculous critique I have ever heard. It’s like Odysseus would come back after winning the battle of Troy and a guy would say, ‘I do not like the way you held the spear when you won.’ “

Munger on investing in China

“There is no doubt about the fact that the Chinese government has worried investors from the United States… In recent months and years and did in previous periods. There has been some tension. It has affected Chinese stocks.”

Munger on bitcoin

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

Ajit Jain, deputy chairman of Berkshire, on the threat of a nuclear attack

“The extra thing that worries me about the nuclear situation is my inability to really estimate what our real exposure is in the event of a nuclear incident.”

“When it comes to nuclear power, I surrender in a way.”

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