Buffett, 91, spoke at length during his annual shareholder meeting Saturday about one of his favorite targets for criticism: investment banks and brokerages.
“Wall Street makes money, one way or another, 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 piece of them. They make a lot more money when people are gambling than when they are investing.”
Buffett bemoaned that large American companies have “became poker chips” for market speculation. He cited soaring use of call options, saying that brokers make more money from these bets than simple investing.
Still, the situation can result in market dislocations that give Berkshire Hathaway an opportunity, he said. Buffett said that Berkshire spent an incredible $41 billion on stocks in the first quarter, unleashing his company’s cash hoard after an extended lull. Some $7 billion of that went to snap up shares of Occidental, bringing up his stake to more than 14% of the oil producer’s shares.
“That’s why markets do crazy things, and occasionally Berkshire gets a chance to do something,” Buffett said.
“It’s almost a mania of speculation,” Charlie Munger, 98, Buffett’s long-time partner and Berkshire Hathaway vice chairman, chimed in.
“We have people who know nothing about stocks being advised by stock brokers who know even less,” Munger said. “It’s an incredible, crazy situation. I don’t think any wise country would want this outcome. Why would you want your country’s stock to trade on a casino?”
Retail traders flooded into the stock market during the pandemic, boosting share prices to records. Last year, the frenzy was fueled further by meme-inspired trading from Reddit message boards. But the stock market has turned this year, putting many of those new at-home traders in the red. The Nasdaq Composite, which holds many of the favorite names of small traders, is in a bear market, down more than 23% from its high after an April crush.
Warren Buffett has a long history of deriding investment bankers and their institutions –saying that they encourage mergers and spinoffs to reap fees, rather than improve companies.
He typically shuns investment bankers for his acquisitions, calling them pricey “money shufflers.” Buffett’s $848.02 per share offer for insurer Alleghany reportedly excludes Goldman’s advisory fee.
Earlier in the session, he noted that Berkshire would always be cash-rich, and in times of need, would be “better than the banks” at extending credit lines to companies. An audience member made an inaudible comment while he was talking.
“Was that a banker screaming?” Buffett joked.
(Follow along to live updates and a live feed of the annual meeting here.)