Warren Buffett, the CEO of Berkshire Hathaway, condemned Wall Street for encouraging speculative behavior in the stock market, effectively turning one of America’s largest financial institutions into a “gambling parlor.”
The 91-year-old executive made the comments on Saturday during his company’s annual shareholder meeting. The primary targets of his criticisms were investment banks and brokerages, CNBC reported.
Buffett said, “Wall Street makes money, one way or another, catching the crumbs that fall off the table of capitalism. 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 suggested that American companies have become “poker chips” for market speculation citing the drastic increase of call options since brokers make more money from using them instead of simple investing strategies.
He also suggested that the current situation could cause market dislocations that ultimately benefit Berkshire Hathaway by giving them new opportunities. Buffett indicated that his company unleashed its cash hoard and spent $41 billion on stocks in the first quarter of 2022.
“Markets do crazy things, and occasionally Berkshire gets a chance to do something,” Buffett said.
Charlie Munger, Buffett’s 98-year-old long-time partner and Berkshire Hathaway vice chairman, said, “It’s almost a mania of speculation.”
Munger continued, “We have people who know nothing about stocks being advised by stockbrokers who know even less. 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?”
The two executives took aim at the apparent abundance of retail traders, many of whom journeyed into the stock market for the first time during the early stages of the COVID-19 pandemic boosting prices in their wake. Their spending frenzy was marked by meme-inspired spending trends from Reddit and other online message boards.
However, it appears that the beginner’s luck of these investors has run out as the stock market is currently putting many in the red with a considerable downturn. So far in 2022, the Nasdaq Composite index is down 21%, the S&P 500 shrank by 13%, and the Dow Jones Industrial Average has fallen by more than 9%.
Buffett has a long record of disparaging investment bankers and their institutions, suggesting that they encourage mergers and spinoffs to “reap fees” instead of prioritizing the improvement of companies.
Buffett also noted that his company would always be cash-rich and would be “better than the banks” at extending lines of credit to companies during periods of economic distress.