At this year's Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) annual meeting of shareholders, Warren Buffett (Trades, Portfolio) and his right-hand man, Charlie Munger (Trades, Portfolio), attacked the short-term trading mentality of Wall Street that has prevailed over the past couple of years.
The duo has never particularly been kind to Wall Street’s short-term mentality, focused more on fees and trading revenue than sensible long-term investment decisions.
However, this year Buffett laid into the industry, likening the market to a “gambling parlor” with a casino mentality powered by Wall Street.
“They don’t make money unless people do things…and they make a lot more money when people are gambling than when they’re investing,” he said.
“It’s almost a mania of speculation that we now have,” Munger added. “We’ve got people that know nothing about stocks being advised by stockbrokers who know even less.”
Munger also attacked Robinhood’s (HOOD, Financial) business model.
“Look what happened to Robinhood from its peak to its trough. Wasn’t that pretty obvious that something like that was going to happen?” he said. He went on to accuse the company of encouraging “short-term gambling” and having “big commissions.”
“It was disgusting,” Munger said. “Now it’s unraveling. God is getting just.”
An opportunity emerges
Wall Street has always been accused of taking advantage of its customers, but in the past, it was mostly wealthy people that were swindled. Robinhood was founded with the ambition of making investing more accessible to ordinary Americans. Unfortunately, it has also made it easier for Wall Street to take advantage of them.
On the other hand, this uncertain and volatile environment that has emerged as a result of the short-term trading boom has provided a fertile hunting ground for long-term investors who are willing to swim against the tide and make the most of opportunities when they present themselves.
Unsurprisingly, Buffett and Berkshire were doing just that in the first quarter of the year.
During the quarter, the conglomerate substantially increased its position in oil producer Occidental Petroleum (OXY, Financial), acquiring a 14% stake.
The conglomerate already has a sizable interest in the business, having loaned it $10 billion to fund its acquisition of Anadarko Petroleum several years ago. The deal also came with share warrants.
Considering this substantial interest, Buffett should know the company well, which goes some way to explaining why he was so keen on the stock.
He did offer some color at the annual meeting on why he decided to build such a significant position, which was all the more notable after a multiyear deal drought.
Building a large stake
Commenting initially on market volatility, Buffett said, “That’s not investment. You’re not buying from [investors]. I find it just incredible. You couldn’t do that with Berkshire. ... Overwhelmingly, large companies in America, they became poker chips.”
“That enabled us, in a two-week period, to buy 14% of a business that’s been around for decades,” he added. “Imagine trying to [buy] 14% of the farms in this country, 14% of the apartment houses, 14% of the auto dealerships or just anything, when already 40% were locked up some other place. It defies anything Charlie and I have seen, and we’ve seen a lot.”
In some respects, this activity should not come as a surprise to investors who have been following the Oracle of Omaha’s career.
In the past, he has always been able to act quickly and with conviction when the right opportunity presents itself.
It seems the right opportunity presented itself in the first three months of 2022, and Buffett did not waste any time deploying as much cash as he needed to take advantage of it.
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