Warren Buffett said on Saturday that US financial markets had become virtually “a casino” as millions of new entrants flooded the financial system during the pandemic.
The billionaire and Berkshire Hathaway chief executive spoke in Omaha to thousands of shareholders attending the company’s annual meeting and added that the “unusual” activity was “encouraged by Wall Street because the money is in the stock spin.”
The comments refer to a dramatic shift in the way people around the world are interacting with their finances. Americans have opened millions of brokerage accounts since the pandemic began, with many turning to stock markets to bet on the rapid rise or fall of companies such as Apple and Tesla.
Buffett and Berkshire Vice President Charlie Munger attributed the rapid pace of trading and the fact that many holders of some shares are not long-term investors to the company’s ability to make its own big bets this year.
In the first quarter, the company spent US$ 51.1 billion (R$ 252.43 billion) buying shares, including big bets on oil companies Chevron and Occidental Petroleum. Buffett said it was “amazing” that Berkshire was able to buy more than 14% of Occidental in a matter of weeks.
“But big companies in the US became poker chips and people were buying and selling in two or three days,” he said, referring to derivatives that have become the instrument of choice for many new day traders on the market. “Wall Street makes money one way or another, picking up the crumbs that fall from the table of capitalism.”
There are signs that much of the enthusiasm that propelled US equities to record highs last year has evaporated. Trading in cheap stocks has collapsed and the amount of borrowing investors are taking out to trade has dropped, according to US regulator Finra.
Munger specifically took aim at Robinhood, the online brokerage that has drawn many Americans into financial markets but whose valuation plunged from nearly $60 billion last August to $8.5 billion last week as the slowdown in commercial activity.
“Short-term betting and big commissions… it was disgusting,” he said. “Now it’s unfolding. God is getting fair.”
This Saturday was the first time since 2019 that Berkshire shareholders had the chance to personally hear from the billionaire investor and the company’s top management.
There were questions ahead of the annual meeting, called the “Capitalists’ Woodstock”, about whether the pandemic would affect participation levels. Managers at several Berkshire subsidiaries said attendance at the Omaha convention center on Friday, the day when shareholders were able to buy Fruit of the Loom underwear or discounted household goods at The Pampered Chef, was smaller.
But when Buffett opened the meeting, with his usual one-word phrase, “Okay,” the audience at the CHI Health Center rose to their feet.
Investors have several hours to go before they hear the outcome of the day’s actual deals — whether shareholders managed to come up with proposals that would require Berkshire to disclose the environmental impact of its dozen subsidiaries or whether they will share the title of chairman and chief executive. .
Analysts expect the proposals to fail, given Buffett’s ownership of high-class voting stock.
The company said Saturday that its operating profits had changed little from a year earlier, with the strength of its BNSF railroad and manufacturing facilities offsetting a sharp drop in profitability from its insurance business.
Overall, net income fell by more than half year-over-year to $5.5 billion. The drop was mainly due to changes in the value of his investments, which Buffett laments as a “generally meaningless” metric as his stock portfolio topped $390 billion in value.
Buffett was asked about the recent surge in 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 “some stocks got very interesting for us and we also spent a lot of money.”
But he added that the mood at the company’s headquarters had become more “lethargic”, particularly compared to the pace recorded between mid-February and mid-March, when the company spent more than $40 billion ) in shares.
Berkshire has reduced a sizable portion of its cash to do these deals, with the value of its cash holdings and Treasuries falling to $106 billion, the lowest level since 2018.
Buffett said the company would always keep a sizable amount of cash on hand, as its insurance operations need to be ready for large claims in the event of a catastrophe. He added that he wanted Berkshire Hathaway to be “in a position to trade if the economy stalls, and that can always happen.”
“We had a lot of money on March 20th,” he said, referring to days when the S&P 500 hit its lowest levels of the pandemic. “But we weren’t too far away from having something like a repeat of 2008, or even worse.”
Translated by Luiz Roberto M. Gonçalves
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
