Warren Buffett drops a truth bomb about investing in his recent 2022 Berkshire Hathaway annual meeting, nicknamed the “Woodstock for Capitalists.”

“Wall Street makes money, one way or another, catching the crumbs that fall off the table of capitalism,” said Warren Buffett

“They don’t make money unless people do things, and they get a piece of them. They make a lot more money when people are gambling than when they are investing,” he said.

“It is much better to have someone trade 20 times a day and get all excited. It is like playing a slot machine,” said 91-year-old legendary investor Warren Buffett. 

“Wall Street makes money, one way or another, catching the crumbs that fall off the table of capitalism”

WARREN BUFFETT

Warren Buffett drops a truth bomb giving his insight into the different shades of grey of Wall Street

Warren Buffett noted that when he talks about Wall Street, he refers to the financial markets in general.

So think of a casino where the stocks are like numbers on a roulette table and where the money pushers, investment banks, keep the gambling addicts playing at the table.

To keep the investors patronizing the casino you have the entertainers, the analysts, lap dance, the drinking saloon bar, musicians, and the attractive escorts.

“It is a gambling parlor,” said Warren Buffett.

Warren Buffett drops a truth bomb about investing, the addictive thrill-seeking side of chasing a big win

People love the thrill of a big win, even if the odds of winning are less than being struck by lighting. During the last Great Recession of 2008 to 2010, more people bought lottery tickets. Despite the recession nationally, lottery sales were up $1 billion over the past year. More than half of states sell multi state lottery tickets, which has increased sales as more people are attracted to the chance to win a huge jackpot.

It is a gambling parlor

WARREN BUFFETT

Anything which gives an adrenaline rush can be addictive. Have you seen joggers in the cold rain?

Self-control is the key. If you are an independent-minded strong personality type that does not like to be controlled by anyone or anything, you are least likely to succumb to an addiction. You will probably also have the right makeup for an investor.

“Warren Buffett Berkshire Hathaway’s sizable Q1 loss is a significant reversal from the nearly $5 billion gain it saw in the same period of 2021”
Wealth Training Company

Warren Buffett drops a truth bomb after announcing that Berkshire Hathaway suffered a $1.58 billion loss in the first quarter of 2022

Warren Buffett Berkshire Hathaway’s sizable Q1 loss is a significant reversal from the nearly $5 billion gain it saw in the same period of 2021.

Warren Buffett spoke at length during his annual shareholder meeting on Saturday about his favorite targets for criticism: investment banks and brokerages.

Warren Buffett drops a truth bomb that monetizing players’ emotions, whether it be fear or greed is Wall Streets’ most lucrative business. Selling paper derivatives is a quadrillion dollar market, which is more than the physical market.

So what are derivatives?

It is a contract where the value derives from and is dependent on the value of an underlying asset, such as a commodity, currency, or security. It is known as “the derivatives market”.

The options market is a derivatives market, and if an investor is driven by fear and thinks the price of an asset will fall, he will buy a put option, which is the right to sell the asset at a stimulated future date. For example, by purchasing a put option for $5, the investor has the right to sell 100 shares at $100 per share. If the ABC company’s stock drops to $80 then you could exercise the option and sell 100 shares at $100 per share resulting in a total profit of $1,500

Alternatively, if the investors feel greedy, and thinks the price of an asset will rise they will be a call option.

So the options market, which is larger than the stock market, monetizes players’ emotions, and Wall Street capitalizes on investors’ hope that a stock will rise or even hope that it will fall.

“Buffett bemoaned that large American companies have “become poker chips” for market speculation” – Wealth Training Company

Wall Street is a gambling parlor where brokers sell hope of making profits. More often than not, the investors’ hope of an asset taking a moonshot or profiting from a crash is unrealistic, particularly if the investor is plugged into the matrix.

Buffett bemoaned that large American companies have “become poker chips” for market speculation. He cited the soaring use of call options, saying that brokers make more money from these bets than simple investing.

Think about it. What does it cost to create a put or a call option? No CAPEX is required, and no raw materials are consumed. It is a trillion-dollar business selling investors’ emotions, and it is a Wall Streets license to print money. So if you are a short-term trader, keep a note of when the expiry option date of the asset you are trading. In the short term, expect the unexpected. After all, it is how the Wall Street titan banks make a fortune selling hope, billions of dollars of worthless paper. 

Warren Buffett drops a truth bomb about short-term investing, namely that the house usually always wins

But for long-term investors, the odds of winning are in your favor.

Central banks are a significant factor in driving asset prices. If the stock index, long term, underperformed cash or bonds, the stock market would cease to exist. Why would you invest in a high-risk asset if the rate of return is lower than taking little or no risk in cash or bonds?

So for long-term investors, central banks will financial engineer stocks to the upside. Without investors, there is no capitalism.

But Warren Buffett remains cash-rich.

“Berkshire would always be cash-rich, and in times of need, would be “better than the banks” at extending credit lines to companies. An audience member made an inaudible comment while he was talking.

“Was that a banker screaming?” Buffet jokes.

Watch Warren Buffett drops a truth bomb here.