Meme stock and erstwhile video game retailer GameStop are back in the spotlight as Reddit kingpin Roaring Kitty sparks another trading frenzy. Warren Buffett commented at length on speculation during the first GameStop mania of 2021. . “It’s become a very important part of the casino group that’s joining the stock market,” Buffett said at the 2021 Berkshire annual meeting. “They’ve set up systems so that if you want to buy a three-day call option on a stock, you It can be done. And they make more money selling you calls than you do buying stocks.” Buffett lamented the surge in the use of short-term calls, saying brokers make more money from those bets. Much more than simply long-term investing. The 93-year-old investing legend treats stocks like small businesses and prefers to hold investments for years, even decades. GameStop options trading exploded after Roaring Kitty, whose legal name is Keith Gill, touted his large positions in these risky instruments. He just exited a 120,000 three-week call option on GameStop a few days ago. “There’s nothing illegal about it, there’s nothing unethical about it,” Buffett said of the use of short-term derivatives. “But the extent to which a very wealthy society can reward those who now know how to fundamentally exploit the gambling instincts of the American public and the public around the world…that is not the most admirable part of the culture” . ‘Like pulling the handle of a slot machine’ In the events of 2021, Robinhood and other brokerage firms have been criticized for relying on “order flow payments” as a profit engine rather than commissions. These brokers are paid for sending trades to them through market makers such as Citadel Securities. “Unless people do things and get a piece of the action, they don’t make money,” Buffett said. “When people gamble, they make a lot more money than when they invest. If someone trades 20 times a day and feels good about it, To illustrate the dangers of a gambling mentality and the institutions that profit from it, Buffett read from his favorite book, The General Theory of Employment, Interest, and Money. Maynard Keynes famously said this sums up the problem of the largest market imaginable in the world. “Speculators may not cause as much harm as bubbles in a steady stream of businesses. But when businesses become bubbles in a speculative vortex, the situation is serious. When a country’s capital development becomes a by-product of casino activity, it The job may not be done well,” Buffett read.
