Buffett bashes investing 'casino game'

The famed investor says the shift from sound investments to outright trading is muddling the long-term market.

By Jason Notte Dec 4, 2012 4:19PM

File photo of Warren Buffett on the NBC News' 'Today' show on November 27, 2012 (Peter Kramer/NBC/NBC NewsWire via Getty Images)Don't let all of that hanging out with Jay-Z fool you: Warren Buffett can get as curmudgeonly as any other less well-off 82-year-old out there.


The Berkshire Hathaway (BRK.A) head doesn't refrain from grabbing the ear of the nearest news outlet when something's troubling him, and last week it was all those hedge fund kids on Wall Street focusing on trading rather than investing. During a perfectly cordial lunch with New York Times columnist Andrew Ross Sorkin in midtown Manhattan, Buffett bemoaned the state of a market so liquid that he was able to pick up a 10% stake in IBM in six to eight months.


"The idea that people look at their holdings in such a way that that kind of volume exists means that to a great extent, it's a casino game," Buffett told Sorkin.


The last time Buffett decided he felt strongly about something, he used the Times' op-ed page the Monday after Thanksgiving to shout down anti-tax activist Grover Norquist and call for increased, multi-pronged taxes on the wealthy. He also suggested that newly re-elected President Barack Obama's "Buffett Rule" for taxing the rich wasn't nearly as strong as he'd like for a rule with his name on it.


This time, it's Sorkin's own fault for getting Buffett's blood up. Buffett only swung into town from Omaha to talk up "Tap Dancing to Work," a new book about his life by Carol Loomis of Fortune magazine, and to do a spot about it on “The Daily Show.” That book already had him feeling a bit nostalgic, but being so close to the action again got him thinking about old-school hedge fund investors like Tiger Management founder Julian Robertson and how far today's crop of profit-chasing, fee-bleeding, quick-flipping hedgies has fallen from that ideal.


"They’re not as good as the old ones generally. The field has gotten swamped, so there’s so much money playing and people have been able to raise money by just saying 'hedge fund,'" he said. "That was not the case earlier on; you really had to have some performance for some time before people would put money with you. It’s a marketing thing."


No, hedge fund guy at the Stone Street Tavern ordering your third Bronx Is Burning bourbon cocktail of the evening, Buffett doesn't know who you are. If your name isn't Seth Klarman, the low-key value investor who runs Boston's Baupost Group, he hasn't heard of you and doesn't care how much you've made. If he did, would he admire you for sweet private equity moves? His answer: "No."


That's not to say he wasn't a whole lot like those young hedge fund folks at one point. The managers shorting stocks now and betting against company shares are using part of a Buffett strategy that he employed while running a hedge-fund-like private partnership in the early '70s. Why did he stop? Because he and his longtime friend and Berkshire vice chairman Charlie Munger have since found easier ways to make money.


"The whole thing about 'longs' is, if you know you’re right, you can just keep buying, and the lower it goes, the better you like it, and you can’t do that with shorts," he told Sorkin.


That's right. Not only doesn't he not care that you're making loads of expendable cash, but he thinks you're doing it wrong. While we're sure most brokers and traders will get over the disappointment and use a couple of spare hundreds to wipe away their tears, Buffett's larger point is that there's still a lot of game to be played by these folks. It's not the state of hedge fund managers and their bank accounts now, but where they and the pension funds that employ them will stand when they've seen as much as Buffett has.


Maybe Buffett would build a fund as big and as fast as some of his modern contemporaries if he started again today, but right now he's armed with a bit of information the new class of hedge fund investor still doesn't grasp: "Money starts getting self-defeating at a point, too."


More from Money Now

91Comments
Dec 4, 2012 8:50PM
avatar

The increased activity of trading has simply created liquidity but the true long term investors simply have to ignore the "noise" of the high trading volume and make the same investments and await the long term gains they hope for. also shorter of the market can actually support a stock as they have to buy back their positions and every market takes a buyer and a seller. 

 

If anything the volatility has increased but the macro trends remain unaffected but with good liquidity. I would also agree that Buffet has been one one of the largest and greatest tax minimizer / avoider in American history plus has also made money by getting sweet heart deals and taking advantage of those that are in crisis and he graciously stepped in and made huge profits.(Read : The Rise and Fall of Long Term Capital) I admit he has taken risk but I think he is trying to now buy his way into heaven(see similar stances taken through history by people in a similar place) and wanting the masses to remember him well rather than for the ruthless business builder and amasser of wealth which he actually is and really continues to be.

Dec 4, 2012 8:40PM
avatar

I'm glad to see I have something in common with Mr Buffet.  Yes it is a casino....at best.  At worst it is rigged and anyone trying to do honest analysis gets swamped by whatever the traders are doing.

 

Perhaps he is a little frustrated that his way of trading doesn't work as well as it used to.   Heck for the last 20 years, all he had to do was secretly amass shares and then leak that he was buying them.  All the suckers would jump in and he looked  like a genius.   Now computers are doing the trading and they don't jump like the suckers did.  They dance to an entirely different tune.  

 

It is more like a casino now and the odds are not in the little guys' favor.

Dec 4, 2012 8:29PM
avatar
All of you people slamming Buffett; have you done your research on his philanthropic givings? Yeah, he makes and has made alot of money; dig a little deeper to what he has given away. It is refreshing to see a wealthy individual giving back. How many rich republicans can you name that do that?
Dec 4, 2012 7:17PM
avatar
When Bush gave the peons $300, he gave his "base" an average of $49,000.  We need to be real, please.
Dec 4, 2012 7:16PM
avatar
We need to make capital gains taxes progressive just like the income taxes on real work!  15% tax on all capital gains is embarrassing.  How can the wealthiest citizens care so much for $$$$ and so little for this country?
Dec 4, 2012 7:10PM
avatar
Warren Buffett is old enough to  have accrued most of his wealth under a tax structure far more stringent than now.  Yet he doesn't see higher tax rates as inhibiting.  He doesn't see inherited wealth as appropriate .   I think he knows that one can accumulate great wealth without contributing one iota to the well being  of the populace or creating a single job and this knowledge contributes to the conclusions previously stated.  My only problem with Buffet is why does he believe Africa, specifically sub-Saharan Africa more deserving of his ultimate largess than the people of desperate need in this country?
Dec 4, 2012 7:06PM
avatar
Buffet is as greedy as anyone God ever wadded a gut into. Dont listen to him, watch what he does.
Dec 4, 2012 6:46PM
avatar
Hi, Mr. Buffett knows that stocks are a long term investment, I dont pay the Market, I invest in company  for the long run, mostly good soild American Companies, in a 20 year peroid there is nothing that out performs stocks in companies !
Dec 4, 2012 6:42PM
avatar

If Obama worked for Buffett he would be fired.

Buffett is a hypocrite. He has lived his life working capitalism to his own benefit and now decries anyone else who wants to do the same.

He takes a meager salary but huge amounts in dividend income and claims his tax rate is too low.

He pays his "secretary" $350K per year and then grabs headlines like "my secretary has a higher tax rate than I do".

Its easy to be a socialist when you already milked the markets and became so wealthy that you no longer care.

Dec 4, 2012 6:08PM
avatar
OBAMA   PLEASE TAKE OFF THE GLOVES  DONT BACK DOWN
Dec 4, 2012 6:07PM
avatar
Buffett is right  REPUBSCUM DONT WANT TO PAY ANYTHING THEY ARE USELESS PEOPLE
Dec 4, 2012 6:05PM
avatar
We'll see who is right. Buffett made this bet with Protege Partners: “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
http://longbets.org/362/
Dec 4, 2012 5:04PM
avatar
Amazing how Buffet avoids taxes during his lifetime....writing about doing so in his books.  But now that he has made his billions, he wants to change his legacy and is advocating for higher taxes.  What a hypocrite!
Dec 4, 2012 4:55PM
avatar

OK Buffett isn't foolproof but the sarcasm isn't warranted. The author can borrow may stagnant wage stub, and declining net worth spreadsheet to dry those tears instead. Wall street did create the bubble because of low cap gain taxes and banking deregulation. Violating the trust of main street and setting the GOP back fo years. Rapid-trading, puts, calls, ETFs, credit default swaps, options, after after markets is not sober patient investing. Hedge funds lying about the returns, "investment" firms failing most companies for the chance to hit one homer, these things create money based on the inflated price they drummed up. Not the value.  I doubt the hedge funds have recreated the trillions in GDP lost in the collapse. I'm doubting the GDP gains during the runup were real anyway --it was all "growth" from  the Financial Services bubble! Manufacturing was killed in that decade. Again. The economy needs to make things besides lame apps and fund returns. I am voting against wall street for a while and for the guy who's going to bring back value-added activity.

Dec 4, 2012 4:49PM
avatar
Buffett wouldn't be Buffett if he was starting to invest today. When he started, you could analyze a company and determine it's potential using real aspects. We haven't been in that zone for years now. It would be hard to deny that almost everything about the markets right now is socially driven by sociopaths.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

Trending NOW

What’s this?

MARKET UPDATE

[BRIEFING.COM] There hasn't been much change on the surface over the past 30 minutes, but the Nasdaq has returned to its flat line in a move that coincided with the biotech group surrendering its gain. The iShares Nasdaq Biotechnology ETF (IBB 221.98, -0.75) is now lower by 0.3%, while the health care sector sports a slim loss of 0.2%.

Elsewhere, the Dow Jones Industrial Average (-0.2%) is being kept below its flat line by significant losses in a handful of large components. ... More

MSN MONEY'S