Buffett says market ‘almost totally a casino’ as it rallied in recent years

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

The billionaire and CEO of Berkshire Hathaway, speaking to thousands of shareholders gathered for the company’s annual meeting in Omaha, said the “extraordinary” activity was “encouraged by Wall Street because the money is in converting shares”.

The comments follow a dramatic change in how people around the world are interacting with their finances. Americans have opened millions of brokerage accounts since the start of the pandemic, many of whom have turned to the options markets to bet on the rapid rise or fall of companies such as Apple and Tesla.

Buffett and his advisor, Berkshire’s vice president Charlie Munger, credited the rapid pace of business and the fact that many holders of some stocks weren’t long-term investors for the company’s ability to make its big bets this year.

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

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

There are signs that the enthusiasm that drove US stocks to record records last year has evaporated. According to US broker-dealer watchdog FINRA, trading in penny stocks has collapsed and investors are turning to borrowings to trade.

Munger specifically targeted online brokerage Robinhood, which has led many Americans to the financial markets but whose valuation fell from nearly $60bn last August to $8.5bn last week as trading activity has slowed.

“Short term gambling and big commissions . , , It was disgusting,” he said. “Now it is settling. God is judging.”

Saturday is the first time since 2019 that Berkshire shareholders have had a chance to hear directly from the billionaire investor and the company’s top management in person.

There were questions ahead of the annual meeting, often called Woodstock for capitalists, about whether the pandemic would affect attendance levels. Managers of several of Berkshire’s subsidiaries said Friday’s vote at the convention center in Omaha, a day when shareholders can buy Fruit of the Loom underwear or receive home goods discounts at The Pampered Chef, pales in comparison to recent memory. was less.

But when Buffett opened the meeting with his usual one-word line, “OK,” a packed audience at the CHI health center got on their feet.

Investors have several more hours to wait before hearing the day’s actual business results — whether shareholders succeed in pushing forward proposals that would require Berkshire to disclose the environmental impact of dozens of its subsidiaries Or if they would split the chairman and chief executive titles. Analysts expect the proposal to fail given Buffett’s ownership of highly rated voting stock.

The company reported earlier on Saturday that its operating income had changed slightly over the previous year, driven by a sharp decline in profitability from its insurance business, driven by the strength of its BNSF Railroad and manufacturing units.

Overall, net income fell by more than half from a year earlier to $5.5bn. The decline was primarily due to a change in the value of its investments, which Buffett laments as a “generally meaningless” metric, as its stock portfolio has assumed $390bn in value.

Buffett was questioned about the spurt in recent stock purchases after he lamented the lack of attractive investments in his annual letter to investors in February. He added that during the market sell-off this year, “some stocks were very interesting to us and we also spent a lot of money”.

But he said the mood had become more “dull” at the company’s headquarters, especially compared to the momentum recorded between mid-February and mid-March, when it spent more than $40bn on shares.

Berkshire slashed a large portion of its cash pile to execute trades in which the value of holdings in cash and Treasury bills fell to $106bn, its lowest level since 2018.

Buffett said the company will always carry large amounts of cash, as its insurance operations need to be prepared for large claims in the event of a disaster. He said he wanted Berkshire Hathaway to be “in a position to work when the economy stalls and that can always happen”.

“We had a lot of money on March 20th,” he said, referring to the days when the S&P 500 hit its lowest level since the pandemic. “But we weren’t too far from having 2008 or something worse.”

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