Warren Buffett rips Wall Street for turning stock market into a gambling parlor

[Hydrogen]

• Berkshire Hathaway CEO Warren Buffett lambasted Wall Street for encouraging speculative behavior in the stock market, effectively turning it into a “gambling parlor.”
• 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.”

Berkshire Hathaway CEO Warren Buffett lambasted Wall Street for encouraging speculative behavior in the stock market, effectively turning it into a “gambling parlor.”

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.


https://www.cnbc.com/2022/04/30/warren-buffett-rips-wall-street-for-turning-the-stock-market-into-a-gambling-parlor.html

....


Warren Buffett is notorious for his famous quotations and this piece is no exception:

“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.

“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?”

These comments resonate with crashes and market failures in 2022. Even bitcoin's trading cycles might be defined in terms of rampant speculation and assets being traded like "chips in a casino".

If the wealthiest and most successful stock traders in Warren Buffett is currently unhappy with current market conditions and trading behavior. Is there much hope for average investors having profitable runs in stocks, bonds or traditional finance?

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

[jackg]

Investments seem to have started to lose some of the fundamentals but I think the trends of a lot of major companies still go in similar ways. I pick about 8 companies to invest in over the year (normally 4 in the first half and 4 in the latter) so I don't watch much in the way of individual stock moves.

It would seem like the stock exchanges open to "regular" traders do try to push lists like "biggest gainers", "biggest losers", "most volatility"... But these have probably always been a thing, the difference now might be the factor of leverage and the amount of people that have the time to chase these stocks (and, potentially, the amount of money too).

There's enough people not happy to agree on a race draw before the race has started for the hope they can win - you're probably going to face similar things with leverage day traders that have no clue on what they're doing and are just testing out a strategy (a few make money, most don't).

Most big fundamentals still hold true such as value investing and investing in the team/employees.

[mk4]

If the wealthiest and most successful stock traders in Warren Buffett is currently unhappy with current market conditions and trading behavior. Is there much hope for average investors having profitable runs in stocks, bonds or traditional finance?

Of course. If only people were actually patient and waited for a better entry. But as we saw in 2020-2021, stocks were the "thing" and even your dumb neighbor became an "investor" — buying stuff that gets hyped on social media.

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

It'll always depend on how a person does it. Buying things randomly? Gambling. Actually doing analytic research and making highly educated decisions? Investing.

[franky1]

what he is saying is wall street is the market.
in casino terms wall street is the house

the house always wins

this is because the house does not gamble. it simply takes a chip from every deal, every hand.

its all about saying wallstreet profit from fee's, the more action/trades that happen the more wall street earn in fees

you see this with other exchanges too
if
exchange A has a 0.2% fee. its volume might be $1b = $2m fees
exchange B has a 0.1% fee. it entices volume of $2.6b = $2.6m fees

by doing things that entices users to play/invest/trade/gamble more. nets the exchange more income

[Wind_FURY]

OP, there's nothing new about it, and it has been like a gambling parlor since the beginning of the existence of markets. The Tulip Mania, the South Sea Bubble, the bull market during the 1920s, and all the other market manias/bubbles in history. Everyone bought something, and hoped to be rich and wealthy.

The long cryptocurrency super cycle ITSELF will have its own manias and its own depressions, its own peaks and valleys, and there's NOTHING that can change this fact.

[Mauser]

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

No I don't think so, investment banking today is complete from what it was 40 years ago. If you look back to the 1980s the lifestyle of a banker was much closer to that of a gambler from the Hollywood movies than it is today. Back in the days banker would do anything to get their hands on a deal, going to strip clubs with clients, doing cocain and hiring prostitutes was part of client management. In 80s there was much less compliance, regulation and oversight. All the major deals were discussed in some cigare lounges among white man
Today there is a much higher demand ratio among bankers, so the game changed a lot. Also the public is much more sensible about stories of bankers being involved with prostitutes and drugs. And Warren Buffet likes to do business with wall street, he was the one who bailed out Goldman Sachs in 2008 and made a lot of money with his loan.

[Hydrogen]

OP, there's nothing new about it, and it has been like a gambling parlor since the beginning of the existence of markets. The Tulip Mania, the South Sea Bubble, the bull market during the 1920s, and all the other market manias/bubbles in history. Everyone bought something, and hoped to be rich and wealthy.

The long cryptocurrency super cycle ITSELF will have its own manias and its own depressions, its own peaks and valleys, and there's NOTHING that can change this fact.

Is it fair to say history in finance is cyclical in nature? The process begins with an emphasis on fairness, stability and sound money. We have seen this with bitcoin where its inception was dominated by idealism.

As time passes, the emphasis on fairness, stability and sound money practices declines. The system becomes increasingly unstable as people devise increasingly risky and profitable ventures, which usually come at the expense of stability and balance. Until it finally results in a tremendous crash. While motives and reasons behind this process can vary between different eras. It could be fair to say some of the motives and trends remain the same over the course of history.

To some degree, we may also have observed this trend in bitcoin. As time passed bitcoin has increasingly become an instrument of speculation, which has caused its trading patterns to deviate from historical norms. The way bitcoin and crypto are handled and traded have drifted away from core fundamental founding principles. Which have resulted in reduced stability and reliability.

Even though human history is dotted with thousands of years of inflation and failed monetary policy. We have yet to learn from our mistakes sufficiently enough to sustain long term preventionary measures. "An ounce of prevention is worth a pound of cure," is the ideal we should embrace. But it seems there are simply never enough who recognize dangers of repeating failed monetary policy, for these types of disasters to be prevented.

[Wind_FURY]

OP, there's nothing new about it, and it has been like a gambling parlor since the beginning of the existence of markets. The Tulip Mania, the South Sea Bubble, the bull market during the 1920s, and all the other market manias/bubbles in history. Everyone bought something, and hoped to be rich and wealthy.

The long cryptocurrency super cycle ITSELF will have its own manias and its own depressions, its own peaks and valleys, and there's NOTHING that can change this fact.

Is it fair to say history in finance is cyclical in nature? The process begins with an emphasis on fairness, stability and sound money. We have seen this with bitcoin where its inception was dominated by idealism.

Speaking from what we have already been observing, it has been cyclical in nature. Smart money goes in, plebs follow. Smart money goes out, plebs panic. It starts again with smart money goes in again, and as in the past, plebs like us always follow.

As time passes, the emphasis on fairness, stability and sound money practices declines. The system becomes increasingly unstable as people devise increasingly risky and profitable ventures, which usually come at the expense of stability and balance. Until it finally results in a tremendous crash. While motives and reasons behind this process can vary between different eras. It could be fair to say some of the motives and trends remain the same over the course of history.

To some degree, we may also have observed this trend in bitcoin. As time passed bitcoin has increasingly become an instrument of speculation, which has caused its trading patterns to deviate from historical norms. The way bitcoin and crypto are handled and traded have drifted away from core fundamental founding principles. Which have resulted in reduced stability and reliability.

That can't be avoided. Everyone that came after Hal Finney and during that time of the first users of the Silk Road came because it made sense, AND because it's a good investment. I bought because of that reason first, I won't lie about it. BUT I have also understood its ethos, and its importance. I HODL, debate, and troll the trolls because of that reason.

Even though human history is dotted with thousands of years of inflation and failed monetary policy. We have yet to learn from our mistakes sufficiently enough to sustain long term preventionary measures. "An ounce of prevention is worth a pound of cure," is the ideal we should embrace. But it seems there are simply never enough who recognize dangers of repeating failed monetary policy, for these types of disasters to be prevented.

We simply can't change human nature, but humans can invent a back up, or a fall-back in case of a Modern Monetary Failure. If only there was a decentralized currency invented.

[dothebeats]

Props to him for acknowledging that what's currently happening in the markets is nuts, and that market movement allowed him and his company to make money and join in on the fray. At the least, he's not a hypocrite and he's telling the retail investors that what they're doing is wasting time and money, and that investing remains king all the while speculation will only get them to nowhere UNLESS they know something more than Wall Street or the big bankers. The guy obviously knows what he's talking about, and he's like giving us an extremely valuable piece of advice that we are ignoring just because we are reaping the benefits now. I personally invest and speculate, but the latter gives out faster returns than the former. And in today's day and age, speculation has a lot more avenues and platforms to start with compared to investing which kinda pushes the average Joe to go about and speculate rather than invest.

[buwaytress]

Agree. But...

Where has Buffett and his 98-yr old friend been all these years if he didn't notice the dice rollers at Wall Street all his life?

Did people lose their savings and jump off buildings in the 1930s Great Depression because they were making wise decisions and not risking money they couldn't lose on bets?

All the stats continue to prove the majority of traders lose money -- stocks, forex, crypto, etc. They all came from stocks and Wall St. It's not a new phenomenon, it's the mentality that the activity attracts.

[justdimin]

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

No I don't think so, investment banking today is complete from what it was 40 years ago. If you look back to the 1980s the lifestyle of a banker was much closer to that of a gambler from the Hollywood movies than it is today. Back in the days banker would do anything to get their hands on a deal, going to strip clubs with clients, doing cocain and hiring prostitutes was part of client management. In 80s there was much less compliance, regulation and oversight. All the major deals were discussed in some cigare lounges among white man
Today there is a much higher demand ratio among bankers, so the game changed a lot. Also the public is much more sensible about stories of bankers being involved with prostitutes and drugs. And Warren Buffet likes to do business with wall street, he was the one who bailed out Goldman Sachs in 2008 and made a lot of money with his loan.

I have to say that it is much much worse today. Now you may question why would it be a lot worse today when all you said was true? I mean all those cocaine, strip clubs and unregulated markets where they were gambling, and yet how could it be worse today? Well, let me tell you one thing: bribery.

Back in those days bankers weren't protected the way they are today, which means that if they lost their money then they lost their money, and that meant even though they were gambling a lot more than today, they were responsible for the losses, and they would be gone if they lost all the money whereas today if they do, then your money would be gone and they would just get bailed out. That's the horrible difference.

[Moneyprism]

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

what is happening in today's society is that most people buy stocks not because they believe in the fundamentals of the company,,, but because of the hype that is created .. and usually investors like this will not last long in the market, because as soon as they see speculation and market trends that tend to go down, they will sell their shares and in the end they will suffer a loss

[Hispo]

If the wealthiest and most successful stock traders in Warren Buffett is currently unhappy with current market conditions and trading behavior. Is there much hope for average investors having profitable runs in stocks, bonds or traditional finance?

Of course. If only people were actually patient and waited for a better entry. But as we saw in 2020-2021, stocks were the "thing" and even your dumb neighbor became an "investor" — buying stuff that gets hyped on social media.

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

It'll always depend on how a person does it. Buying things randomly? Gambling. Actually doing analytic research and making highly educated decisions? Investing.

Part of the problem is that different people have definitions of "highly educated" that differ.
I would be comfortable investing in stock after some days of investigation on the company I want to throw some bucks at, even if it was some blue chip company I plan to hold onto for years. Others do not even need that, they expect their favorite "financial" influencer to guide them towards the money. 

I personally feel bad for those who invested on Facebook/Meta at the beginning of the Metaverse pursue, I would have never expected to see such downfall from a previous top company. I assume there were some people even hyping it on social media.

[Wind_FURY]

Agree. But...

Where has Buffett and his 98-yr old friend been all these years if he didn't notice the dice rollers at Wall Street all his life?

Warren Buffett is probably just frustrated because his investments are losing him a large amount of his capital. He shouldn't blame the "gamblers". He should blame the cabal behind the Federal Reserve who BRRRRR-printed billions of Dollars that gave the people extra cash and caused those people to become gamblers.

Plus doesn't he practice "Value-Style Investing"? I believe he's supposed to like a recession because that's the right time to invest in truly valuable companies/ assets, and HODL.

[gantez]

If the wealthiest and most successful stock traders in Warren Buffett is currently unhappy with current market conditions and trading behavior. Is there much hope for average investors having profitable runs in stocks, bonds or traditional finance?

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

Share holders or stock traders have no influence on the market that they are trading, they only rely on the indices in their information or knowledge. The government policy is what can determine the stock of a company because on a harsh tax regulations, the amount to be paid to government if high it will reduce the dividend. Also the policy affect economic activities of companies in operation, stock hodlers investment proceed depends on profit declare by the company.

[The Sceptical Chymist]

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

Yes--but I'd qualify that answer by stating that the stock market has been casino-like many times in the past, with or without derivatives and with or without ignorant speculators.  Buffett and Munger know this, because not only have they lived through prior manias and seen them first hand, they're also educated people who've learned about "bubble behavior".

And they're right with what they're saying no matter how many times they've seen it.  The stock market has been in the longest bull market in history at this point and hell yes there are some people who are doing incredibly stupid things.  Bull markets always bring out that in individuals who are predisposed to act like idiots when there's money involved.

WallStreetBets, anyone?

[so98nn]

Yeah, they like to say these things openly and also in front of their shareholders but then no SEC or CBDC will be interfering with such doubtful statements. Oh wait why would they say anything since they might be getting their so called “cut” OTC or UTC. You know what I mean by this right?

But when there are few complications in the world of crypto currencies then they would start making buzz about it all the way to the bottom of earth. They would go dig every possible scenario to break it down.

And here we are talking about Buffett and his kitty party who can go away with anything from the Wall Street.

[hatshepsut93]

Well, Buffet is a consistent critic of speculative trading. But I think we should listen to the economists here, rather than an investor. Science should tell us whether it's good or bad for the economy if a portion of market's liquidity is represented by high risk derivatives trades. It could happen that trying to regulate these activities too tightly would cause more harm than good to the market.

But I certainly see a problem how exchanges and trading gets advertised to retail investors and just laymen as some sort of stable earning opportunity, rather than a brutal zero sum game, where there are people who play dirty, like insiders or manipulators. This goes for both crypto and stocks or forex exchanges too.

[AndySt]

And they're right with what they're saying no matter how many times they've seen it.  The stock market has been in the longest bull market in history at this point and hell yes there are some people who are doing incredibly stupid things.  Bull markets always bring out that in individuals who are predisposed to act like idiots when there's money involved.

The main problem at this point in time is really too long a bull market period, which contradicts the basic nature of capitalism, when periods of growth should be replaced by crises, when the market is being cleared of uncompetitive participants. The governments of the countries seem to have found an effective way against crises in the form of printing an additional amount of money, but thanks to this, the market is not healing and the problems are simply driven deeper, threatening even greater problems in the future. There is a kind of decoupling of the stock market from direct production, and because of this, the stock market really begins to resemble a casino that has less and less to do with the production of goods and services, for which the stock market was originally created.

[NotATether]

Is it accurate to say that investment has come to more closely resemble casinos or gambling parlors than areas of investment?

Only if you're a Robinhood trader and/or meme stonk flipper.

The majority of people realize that the stock market is for long-term gains and will be happy to leave their money in there for a couple of months if not years.