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

Dec 5, 2012 9:40PM

The top 1% pay 34% of the total income taxes. The bottom 50% pay 3% , the bottom 75% pay 12%. But you dumb dems think you're the ones carrying the load.


Grow dependency , grow the democrat base. Welfare has a been a complete failure on the war on poverty but its been a boom to  the democrat base.

Dec 5, 2012 4:01PM

Warren Buffet (The Oracle of Omaha) publicly says what needs to be done. He says the rich need to pay more, he says he pays a lower tax than his secretary, he tells about the tax loop-holes he uses and if the government doesn't close them he wil continue to use them, he even once said that the price ofhis stock was overvalued and wasn't worth buying (what other CEO could get away with doing that), he even once went to get change for a quarter when public calls were a dime because he didn't want to waste the other fifteen cents. Warren Buffet is TELLING the lawmakers what needs to be done but all the politicians are worried about are their jobs, fundraising for their next re-election run and not angering their constituents. The problems the politicians create through non-action are passed down to the next generation to be dealt with after they are comfortably retired with their spoils of war (politics).

Dec 5, 2012 3:40PM
None of this matters in Obamaville.  We all get C's.
Dec 5, 2012 3:29PM
Investment firms make much of their money on transaction fees. Buying and holding doesn't get them enough fees so they keep bouncing your money around.
Dec 5, 2012 2:14PM
Have been saying for several years that they need to jack up the tax rate on quick buy and sell tactics.This will do two things; either get the "gamblers" out of the market,or, force them to hold on to stocks longer to avoid a tax whipping. This might actually give the market a chance to quit showing ridiculous "up and down" numbers and maintain some consistency for people wishing to invest for long term gains and retirement planning???
Dec 5, 2012 2:13PM

And there you have it - the best in the business admitting just what the business is - GAMBLING.


Play at your own risk, fools.

Dec 5, 2012 1:13PM
"Not only doesn't he not care..."

Really MSN?  Not only doesn't that not make sense, it's frustratingly crappy sentence structure.
Dec 5, 2012 12:20PM

Mabye a few more facts would help us all. How about each new bill comes with an expected cost to the tax payer with it. It could come with 2 numbers. The first would be with the current tax system and the second would be with the proposed increase. My guess most people would start learning that these new programs are too expensive no matter what the tax structure is.

Dec 5, 2012 11:10AM
It's mind blowing how many of you think higher taxes are the solution simply because they were higher under Clinton or that they topped out at 90% in the 1950's. Blah, blah, blah. We have massive state and federal deficits today because government, the elected, spent lavishly on itself for decades, not because the people, the electors, didn't give government enough of their own money. By the way you impish sheep, when did government become THE Government? I'll tell you when, when fools started to believe that our republic was for no particular reason the property of the elected and not We The People. The Constitution of the United States of America is not a poetic anthem to be chanted and then ignored. IT is the document that defines our nation's structure and governance by.... who? The people, not the elected. Quiz... Who sits at the top of the flow chart, the electors or those who are elected to do the people's business? If you get that one wrong you shouldn't be wasting everyone's time with your comments.
Dec 5, 2012 9:37AM
"Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now."

-John F. Kennedy

Dec 5, 2012 9:33AM
Could care less what Buffett says about anything. I much rather have the buffet. His little brother in the Whitehouse thinks that if he can replicate Clinton's tax structure he would have similar results. Wrong! The times are a changin', 
Dec 5, 2012 1:40AM

Buffett has played by the rules he paid for via lobbists so I guess it's fair under those rules but as for the We the Peoples rules he cheated the people so the people should be very mad at this guy and when the collapse hits should be found and tried by the people...just saying...you think that is why many rich people are leaving the United States.

Dec 5, 2012 1:09AM
I think Buffet is a good human being, but nonetheless he still look after his own interest until death. He utilizes his wisdom. He is definitely disciplined. He has very realistic perspective on life. It is about time for him to shut up and people should stop listening to him. Please think for yourself.  It is just sad. ....
Dec 5, 2012 1:00AM
When Warren was saying his secretary paid a higher tax rate then he did, he failed to mention that she made a cool  half million dollars a year in salary.
Dec 5, 2012 12:56AM
Warren has lost it. It is time for him to retire.  He has this I got mine and the heck with the rest of you attitude.  Also he is suing the IRS in an attempt to dodge a billion $$$s in taxes.  If he really meant what he says, he would gladly give up that money to the IRS.
Dec 4, 2012 10:13PM
The only reason Buffett wants higher taxes is so that he can charge more his furniture at Nebraska Furniture. He is no dummy. If he is taxed more he will pass along the tax to others, as that is how it is done. He needs quit his moaning, and write out a check to the IRS. He is just another crook, and he needs to go away and take his son with him.   
Dec 4, 2012 9:51PM

People forget the top tax rate in the 1950`s was 90%.Let`s not have a pity party for

the top 2%.They have been spoiled.Hedge fund managers only pay 15% no matter

what they make.

Dec 4, 2012 9:37PM

Mr. Buffett is a hypocrite.   First, if he thinks his taxes should be higher he should be writing a check at the end of the year to the US Treasury to help pay down the debt.  The check should be for what he considers his "fair share."  Second, and it's somehwat related to the first, he gives his money to various organizations rather than the government.  He is acknowledging the fact that he can better invest in worthwhile causes better than what the government does with money.


It's time Mr' Buffett stop talking and starts wrting those checks for his "fair share" to the US Treausry if he thinks he's not paying enough.

Dec 4, 2012 8:53PM

Anyone that thinks Obama, or Warren Buffet has some kind of altruistic approach to fiscal/tax policy is in denial. Just today another 159 pages of explanation for taxing earning on financial gains to fund Obmacare was released. Keep warching your IRA and 401K statements, then tell me how the mddlr class is being spared this costly burden. Also, the $500 billion cuts in medicare is for establishing the 13 new govt agencies to administer healthcare-not for healthcare. It is estimated these agencies will have 113,000 new government employees. Who will pay for that? Thats aside from the thousands of additional IRS required to enforce the mandates With their tax accountants and lawyers, the 2% will not pay for this.


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