Berkshire Hathaway CEO Warren Buffett sees a rise in “casino behavior” in financial markets and reminds investors that gambling is hard to beat.
In his annual letter to shareholders, published online Saturday, Buffett criticized those who buy “hot” stocks or chase short-term gains. Instead, he said that companies like Coca-Cola and American Express, which are such powerful players in their respective industries that it’s hard to imagine a world without them, are what you want to own.
Buying these types of “timeless” stocks when they are undervalued – and then being patient – is the path to greater wealth, according to Buffett, a famous advocate of long-term value investing. (Of course, it’s also important to have a diversified portfolio.)
Meme stock investing, short-term trades and uncalculated options plays, on the other hand, are antithetical to Berkshire Hathaway’s way of operating. These high-risk investments can be a trap for undisciplined investors who have unlimited access to trading apps.
“Whatever the reasons, markets now exhibit behavior much more similar to that of when I was young,” Buffett wrote in the letter. “The casino now resides in many homes and tempts the occupants every day.”
Investors should beware of institutions that encourage “madness” and keep in mind that reckless and frenetic trading behavior helps They the point is, it’s not yours, Buffett said. If you invest too much money in a volatile individual stock, it’s easy to get burned.
At 92, Buffett is one of the most influential figures in the investing world, admired for the success of Berkshire Hathaway, a holding company that beat the market during the nearly six decades he was at the helm.
In this year’s edition of his popular letter, Buffett said that market participants are “no more emotionally stable nor better educated” now than when he began his career. This means you can still find opportunities to invest in undervalued stocks and watch your investments grow over time — an approach that will likely work better than treating investments like gambles.
“Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been – and will be – rewarding if you make a couple of good decisions in your lifetime and avoid major mistakes,” Buffett said.
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