The Oracle of Omaha is issuing one of his starkest warnings, highlighting that he is seeing speculative behavior dominating the markets.
In a new CNBC interview, Warren Buffett says investors today appear to be very focused on chasing short-term gains instead of long-term investing.
“I’ve compared the markets to a church with a casino attached. And people can move between the church and the casino. I would say there are more people in the church and more people in the casino. But the casino has gotten very attractive to people.”
According to Buffett, the behavior looks evident in the explosion of one-day options, or contracts that expire within 24 hours. Buffett notes that the financial instrument has become enormously popular with retail traders.
“If you’re buying one-day options or selling them, that’s not investing. It’s not speculating. It’s gambling, just totally…
And the quantity of those things is just incredible. So, we’ve never had people in a more gambling mood than now.”
Buffett says market speculation can be clearly seen in the price action of the global car rental giant Avis (CAR), which took a nosedive of about 80% in just a few weeks. According to the investor, Avis has been around for 50 years, and its recent collapse is an example of how prices have been untethered to fundamentals.
“But that doesn’t mean that investing is terrible. It does mean that prices for an awful lot of things will look very silly. That’ll squeeze in Avis, of all things.
Well, Avis has been around for 50 years, but just this past week… And we have lots more regulations and everything now, but people spend their time figuring out how to get around the rules rather than follow the rules. That’s just a challenge.”
Buffett’s warning comes as Berkshire Hathaway’s cash position shatters $397.4 billion, triggering questions about whether the legendary investor thinks the market is too expensive to deploy capital.
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