Warren Buffett Says Markets Have Become A 'gambling Parlor'

OMAHA, Neb. — As recently as February, Warren Buffett lamented that he couldn’t find much out there worth buying.

That is no longer the case.

Mr. Buffett’s Berkshire Hathaway Inc. BRK.B -2.55% is turning the spending tap back on after a years-long deal drought. It forged a $11.6 billion deal to buy insurer Alleghany Corp. It bought millions of shares of HP Inc. HPQ -2.53% and Occidental Petroleum Corp. OXY -3.40% and increased its stake in Chevron Corp. CVX -3.16% sharply, making the energy company one of Berkshire’s top four stock investments.

The big question: why?

“It’s a gaming parlor,” Mr. Buffett said Saturday of markets over the past few years. He added that he blames the financial industry for motivating risky behavior among investors. While he finds speculative betting “obscene,” the increase in volatility in the markets is having a good effect, he said: It’s allowed Berkshire to find undervalued companies to reinvest in after a period of relative calm.

“We rely on mispriced companies through a mechanism where we are not responsible for mispricing,” Mr. Buffett said.

Mr. Buffett, 91, shared his thoughts on the state of the markets, Berkshire’s insurance business and recent investments at the company’s annual shareholder meeting in downtown Omaha.

Berkshire also voted on shareholder proposals, with investors eventually defeating measures that required Berkshire to make its CEO independent and required the company to disclose climate risks across all of its businesses.

Shareholders anxious to win first-class seats queued for hours before the doors opened in the arena where Mr. Buffett; right hand Charlie Munger, 98; and Vice Chairmen Greg Abel, 59, and Ajit Jain, 70, took the stage. As Mr. Buffett entered, a lone listener took the opportunity to send a message. “We love you,” the person exclaimed.

Mr. Buffett seemed equally delighted as he watched the thousands of shareholders sit in front of him.

It’s much better to be able to be with everyone in person, he said.

Until recently, Berkshire had mostly been sitting on its cash pile. His business prospered; A recovering economy and a booming stock market helped push net earnings to record highs in 2021. But no major deals have been announced, leading many analysts and investors to fret about the next steps. Berkshire ended the year with a near-record cash position. (Following Berkshire’s spending spree, the company’s war chest shrank in size from $146.72 billion three months earlier to $106.26 billion at the end of the first quarter.)

Mr. Buffett’s sense that there were no attractive investment opportunities for Berkshire quickly gave way to excitement in late February, he said Saturday when receiving a copy of Alleghany CEO Joseph Brandon’s annual report.

The report piqued his interest. He decided to follow Mr. Brandon and fly to New York City to discuss a potential deal over dinner.

Warren Buffett arrived at Berkshire Hathaway’s annual meeting in Omaha, Neb., on Saturday to speak to shareholders.

Photo: SCOTT MORGAN/REUTERS

If the CEO hadn’t come forward, “it wouldn’t have occurred to me to write to him and say, ‘Let’s get together,'” Mr. Buffett said.

Berkshire’s decision to build a 14 percent stake in Occidental also came with a report. Mr. Buffett said he read an analyst note about the company, whose shares are still trading below their 2011 high, and decided the casino-like market conditions made it a good time to buy the stock.

In just two weeks, Berkshire acquired millions of shares in the company.

“I don’t think we’ve ever had anything like this in terms of volume of daily pure gambling activity,” Mr. Munger said. “It’s not nice.”

But the amount of speculation in the markets has given Berkshire a chance to spot undervalued companies, Mr. Munger said, allowing the company to deploy its $106 billion in cash reserves.

“I think we deserved more because of the crazy gambling,” said Mr. Munger.

Another company that caught Berkshire’s eye? rafters. Berkshire’s stake in the company was valued at $25.9 billion as of March 31, up from $4.5 billion at the end of 2021, the company’s filings show. This joins Chevron alongside Apple, American Express Co. and Bank of America Corp. one of Berkshire’s four largest stocks.

Neither Mr. Buffett nor Mr. Munger specifically addressed Berkshire’s decision to increase its Chevron stake.

But the two men offered a defense of the oil industry. It’s a good thing for the US to produce more of its own oil, Mr. Buffett said. Mr. Munger went further and said he could hardly think of a more useful industry.

At the meeting, Mr. Buffett also announced that Berkshire had increased its stake in Activision Blizzard Inc. The company now holds a 9.5% stake in Activision, a merger arbitrage bet that will benefit Berkshire if Microsoft Corp’s proposal to acquire the video game maker goes through.

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Ultimately, Berkshire doesn’t try to make its investments based on what it thinks the stock market will do when it opens every Monday, Mr. Buffett said.

“I can’t predict what [a] Stocks will do it… We don’t know what the economy will do,” he said.

Berkshire is focused on doing whatever it takes to continue delivering returns for its shareholders, Mr. Buffett said. Berkshire has returned 20% compound annual gains between 1965 and 2020, compared to the S&P 500, which returned 10% including dividends over the same period.

“The idea of permanently losing other people’s money… that’s just a future I don’t want to have,” Mr. Buffett said.

Write to Akane Otani at [email protected]