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Buffett, 91, spoke at length about one of his favourite targets for criticism, investment banks and brokerages, at his annual shareholder meeting on Saturday.
Berkshire Hathaway CEO Warren Buffett has chastised Wall Street for encouraging speculative behaviour in the stock market, effectively turning it into a “gambling parlour.”
“Wall Street makes money in some way, catching the crumbs that fall off the table of capitalism,” Buffett explained. “They don’t bring in cash except if individuals get things done and they get a slice of the pie.” People who bet get undeniably more cash-flow than the individuals who contribute.”
Buffett lamented the fact that large American corporations had “become poker chips” for market speculation.
He cited the increased use of call options, claiming that brokers make more money from these bets than from traditional investing.
Buffett stated that Berkshire spent an incredible $41 billion on stocks in the first quarter, releasing his company’s cash hoard after a long period of dormancy. Some $7 billion of that was spent on Occidental stock, bringing his stake in the oil company to more than 14 percent.
“That’s why markets do crazy things, and Berkshire occasionally gets a chance to do something,” Buffett explained.
“People who know nothing about stocks are getting advice from stock brokers who know even less,” Munger explained.
“It’s almost a mania of speculation,” Buffett’s long-time partner and Berkshire Hathaway vice chairman Charlie Munger, 98, added.
“It’s an unbelievable, insane situation.” Any wise country would not want this outcome, in my opinion. “Why would you want your country’s stock to be traded on a casino floor?”
During the pandemic, retail investors flooded into the stock market, driving share prices to all-time highs.
Last year, meme-inspired trading on Reddit message boards fueled the frenzy even more. However, the stock market has swung back this year, putting many of those new at-home traders in the red. The Nasdaq Composite, which incorporates a large number of little dealers’ #1 stocks, is in a bear market, down over 23% from its high after an April crash.
Warren Buffett has a long history of criticising investment bankers and their institutions, claiming that they encourage mergers and spinoffs in order to maximise fees rather than improving companies.
He typically avoids using investment bankers for acquisitions, referring to them as “money shufflers.” According to reports, Buffett’s $848.02 per share offer for insurer Alleghany does not include Goldman’s advisory fee.
Earlier in the session, he stated that Berkshire would always be cash-rich and would be “better than the banks” at extending credit lines to businesses in times of need. An audience member made an inaudible remark while he was speaking.
“Did you happen to hear a banker scream?” Buffett made a joke.