Berkshire Hathaway CEO Warren Buffett slammed Wall Street for encouraging speculative behavior in the stock market, effectively turning it into an “arcade.”
Buffett, 91, spoke at length about one of his favorite targets of criticism: investment banks and brokerage houses during his annual shareholder meeting on Saturday.
“Wall Street, one way or another, makes money by catching the crumbs that fall off the table of capitalism,” Buffett said. “They don’t make money unless people do things and they get a share of it. You make a lot more money when people gamble than when they invest.”
Buffett lamented that large American companies had “become poker chips” for market speculation. Citing the increasing use of call options, he said brokers make more money from these bets than they do from simple investments.
Still, the situation may create market dislocations that give Berkshire Hathaway a shot, he said. Buffett said that Berkshire spent a staggering $41 billion on stocks in the first quarter, freeing up his company’s cash hoard after a prolonged slump. About $7 billion of that went toward buying Occidental stock, taking its stake to more than 14% of the oil producer’s stock.
“That’s why the markets do crazy things, and occasionally Berkshire gets a chance to do something,” Buffett said.
“It’s almost speculation madness,” chipped in Charlie Munger, 98, Buffett’s longtime partner and vice chairman of Berkshire Hathaway.
“We have people who know nothing about stocks being advised by stockbrokers who know even less,” Munger said. “It’s an incredible, crazy situation. I don’t think a wise country would want that outcome. Why would you want your country’s stocks to be traded in a casino?”
Retailers flocked to the stock market during the pandemic, sending share prices soaring to record highs. Last year, the frenzy was further fueled by meme-inspired trading from Reddit message boards. But the stock market has turned around this year, pushing many of these new home traders into the red. The Nasdaq Composite, which includes many of the most popular names among small traders, is in a bear market, down more than 23% from its April high.
Warren Buffett has a long history of deriding investment bankers and their institutions — saying they encourage mergers and spin-offs to collect fees rather than improve companies.
He typically shuns investment bankers for his acquisitions, calling them expensive “money-mixers.” Buffett’s offer of $848.02 per share for insurer Alleghany reportedly excludes Goldman’s advisory fee.
At the beginning of the session, he noted that Berkshire would always be cash-rich and would be “better than the banks” at providing lines of credit to companies in times of need. A listener made an inaudible comment as he spoke.
“Did a banker shout there?” Buffett joked.
(Follow live updates and a live feed of the Annual Meeting here.)