Buffett bashes investing 'casino game'
The famed investor says the shift from sound investments to outright trading is muddling the long-term market.
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."
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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.
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.
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.
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.
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