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

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

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

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

Buffett and his delivery man, Berkshire Vice Chairman Charlie Munger, attribute the rapid pace of transactions and the fact that many holders of some stocks are not long-term investors because of the possibility that the company could Big bet this year.

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

“But overwhelming the big companies in the US, they have become poker chips and people are buying and selling like a three-day call, a two-day call,” he said, referring to derivatives that have become tool of choice for many new day 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 pumped US stocks to record levels last year has evaporated. Trading in penny stocks has collapsed and the amount of money investors have borrowed to trade has dropped, according to the US brokerage Finra watchdog.

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. la last week due to a slowdown in trading activity.

“Short-term gambling and big commissions. . . it’s disgusting,” he said. “Now it is being elucidated. God is righteous. “

Saturday was the first time since 2019, Berkshire shareholders had the opportunity to hear directly from the billionaire investor and the company’s top management.

There are questions leading up to the annual meeting, commonly known as Woodstock for capitalists, about whether the pandemic will affect attendance levels. Managers at several Berkshire subsidiaries reported turnout at the convention center in Omaha on Friday, a day when shareholders can buy Fruit of the Loom lingerie or get discounts. at home at The Pampered Chef, was lower than in recent memory.

But when Buffett opened the meeting, with his familiar one-word line, “OK,” a large audience at CHI Medical Center froze.

Buffett and Munger asked questions for more than five hours and were joined in the morning by Berkshire vice presidents Ajit Jain and Greg Abel, Buffett’s obvious heir. While Buffett talks about the effects of inflation, he shies away from many of the topics investors hope he’ll tackle. These include the strength of the US economy, the impact of a possible Chinese recession, and the impact of Russia’s invasion of Ukraine.

Shareholders’ proposals that require the company to disclose its environment and diversity, as well as proposals to find a way to split the roles of chairman and chief executive officer at the company, have not been approved.

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

Overall, net income more than halved year-over-year to $5.5 billion. The drop was mainly due to changes in the value of investments, which Buffett lamented is an “generally meaningless” index as its stock portfolio has eclipsed the value. 390 billion dollars.

Buffett has been questioned about the recent stock-buying boom after complaining about the lack of attractive investments in his annual letter to investors in February. During this year’s market sell-off, “a few stocks were very interesting to us and we spent a lot of money,” he said.

But he added that the mood at the company’s headquarters was becoming “more sluggish,” especially compared with the pace recorded from mid-February to mid-March when the company spent more than $40 billion on share.

Berkshire withdrew a significant portion of its cash to make those transactions, with its cash and treasury bill holdings falling to $106 billion, its lowest level since 2018.

Buffett said the company will always keep a substantial amount of cash, as the company’s insurance operations need to be ready for large claims in the event of a disaster. He added that he wants Berkshire Hathaway “to be in a position to function if the economy stops, and that can always happen.”

“We have a lot of money on March 20th, referring to the days when the S&P 500 hit pandemic lows,” he said. “But we weren’t very, very far away from having something of a repeat of 2008 or even worse.”