A year after Warren Buffett first warned that Robinhood was exploiting the gambling instincts of new investors, he and his right-hand man Charlie Munger all but said “we told you so” at Berkshire Hathaway’s annual meeting on Saturday.
With tens of thousands of shareholders meeting in person in Omaha, Nebraska for the first time since 2019, Buffett again compared the stock market to a casino or betting room and warned that big business has become “poker chips.” during a five-hour question and answer session. Munger couldn’t help but feel a little disgust now that many traders are seeing their portfolios crash and Robinhood’s stock is down 70% since its initial public offering, referring to its payment for order-flow businesses as “hidden kickbacks.”
“Look at what happened to Robinhood from its heyday to its slump. Wasn’t it pretty obvious that something like this was going to happen? Munger said. “That was disgusting. Now it’s coming undone. God is becoming righteous.”
Munger also criticized Robinhood’s “big fees,” even though the trading app has no fees.
“It is exhausting to see Mr. Munger mischaracterize a platform and customer base that he knows nothing about,” Robinhood spokeswoman Jacqueline Ramsay said. “He should just say what he really means: Unless you look, think and act like him, you cannot and should not be an investor. We are happy to share our educational tools as it seems he is lost in digital currencies as well.”
Munger, 98, a Berkshire vice chairman, was blunt with his rebukes onstage, calling bitcoin “stupid because it’s very likely to go to zero” and “evil” at some point at the end of the day. Buffett, 91, likened cryptocurrency’s lack of tangible value in his view to investments he could justify in farmland or apartment buildings.
Buffett generally offered more meandering and diplomatic criticism, but he reserved a lot of blame for market makers on Wall Street who make more profit as stock trading volume increases, regardless of whether they go up or down.
“Wall Street makes money by catching the crumbs that fall from the table of capitalism,” he said. “They make a lot more money when people play than when they invest.”
Both Buffett and Munger boasted that the trading frenzy makes their job of buying mispriced stocks easier, and Berkshire excitedly strolled around the casino in the first quarter, buying $51 billion worth of shares. $41 billion of that sum came in just a three-week span between February 21 and March 15, Buffett said.
The Oracle of Omaha expressed astonishment that the market was so liquid that Berkshire was even able to build a 14.6% stake in Occidental Petroleum worth more than $7 billion in such a short time, saying it would be impossible to do so. Same with Berkshire’s own stock. . Berkshire also significantly increased its stake in Chevron to $25.9 billion from $4.5 billion in the first quarter.
Buffett hinted in his February annual letter that he would look for opportunities to spend some of Berkshire’s $144 billion in cash and U.S. Treasuries. That cash figure dropped to $103 billion after the wave of stock purchases. of the first quarter, not including its deal to buy the Alleghany insurance company for $11.6 billion.
But don’t expect Berkshire to empty the piggy bank: Buffett’s annual letter promised the company will always have more than $30 billion in cash and reinforced his belief in the value of cash on Saturday, even in a high-inflation environment.
“We believe in having cash. There were times in history where if you don’t have it, you can’t play the next day,” Buffett said. “Some of our companies have bank lines, I don’t know why they have bank lines. We are better than banks. We will give them the money if they need it.”
Berkshire’s moves have been well received by the market, and its stock’s 7.5% gain this year has far outpaced the S&P 500’s 13% drop. Its 20.1% compounded annual gain from 1965 to 2021 has surpassed the S&P 500’s 10.5% annualized return, and Buffett’s estimated $117 billion net worth makes him the sixth-richest person in the world.
The conglomerate’s first-quarter earnings provided some cause for concern: Its operating profit was flat at $7 billion, though a 38% decline in insurance profit was offset by gains in its other businesses. Vice President Ajit Jain lamented that Berkshire subsidiary Geico has fallen behind Progressive in auto insurance and needs to catch up on its use of telematics, technology that can track a car’s movements and offer lower rates to the clients.
Jain and Greg Abel, Buffett’s expected successor as chief executive who runs Berkshire’s energy business, joined the nonagenarians onstage for the mid-morning question-and-answer session, but neither Buffett nor Munger they gave no indication that they plan to walk away from the business. Calpers, the nation’s largest pension fund, said in April that it would support a proposal that would bar Buffett from being chairman and chief executive of Berkshire, a motion that seems highly unlikely to pass.
“It’s the most ridiculous criticism I’ve ever heard,” Munger said. “It’s like Odysseus came back from winning the Battle of Troy and some guy said, ‘I don’t like the way you were holding your spear.'”