Warren Buffett on horse race wagering

And when the Buffett family moved to Washington, D.C., Warren just had one request for his dad:

“When we got to Washington, I said, ‘Pop, there’s just one thing I want. I want you to ask the Library of Congress for every book they have on horse handicapping.’ And my dad said, ‘Well, don’t you think they’re going to think it’s a little strange if the first thing a new Congressman asks for is all the books on horse handicapping?’”

But Buffett reminded his father of the help he gave him during the winning campaign, and pledged to be there for him again during his re-election. So Howard got Warren hundreds of books about handicapping horses.

“Then what I would do is read all these books. I sent away to a place in Chicago on North Clark Street where you could get old racing forms, months of them, for very little. They were old, so who wanted them? I would go through them using my handicapping techniques to handicap one day and see the next day how it worked out. I ran tests of my handicapping ability – day after day – all these different systems I had in mind.”

I was looking for someone who’d compiled up every reference Buffett and Munger made to horse race wagering, and I found it here, “DRF Legend Steven Crist on Value Investing and Horse Betting,” by Dillon Jacobs on Vintage Value. (Note that much of that quotes from The Snowball.)

Buffet on Value and DRF

Buffett noted that a bookie actually took action inside Washington’s Old House Office Building.“You could go to the elevator shaft and yell, ‘Sammy!’ or something like that and this kid would come up and take bets.”

Even Buffett himself did some bookmaking for guys who wanted to get down on the big races like the Preakness Stakes. “That’s the end of the game I liked, the 15 percent take with no risk,” Buffett said.

Buffett got along well with his high school golf coach, Bob Dwyer, and the two frequently rode the Chesapeake & Ohio railroad together from Silverspring, MD to Charles Town racetrack in West Virginia. Dwyer taught Buffett how to better understand the Daily Racing Form.“I’d get the Daily Racing Form ahead of time and figure out the probability of each horse winning the race. Then I would compare those percentages to the odds,” said Buffett, who bet from $6 to $10 to win. “Sometimes you would find a horse where the odds were way, way off from the actual probability. You figure the horse has a 10 percent chance of winning, but it’s going off at 15-to-1.”

That last part sounds a lot like Crist on Value, doesn’t it?

This method, looking for overlays, is at the heart of every serious book about horse wagering.

Going broke one day at Charles Town

One day, Buffett went to Charles Town by himself. He lost the first race and his performance went from bad to worse until he was down $175. Feeling depressed, he went to an ice cream shop and bought himself a sundae with the last of his money.

While eating, Buffett thought to himself that he had just lost more money than he made in a week.“And I’d done it for dumb reasons. You’re not supposed to bet every race. I’d committed the worst sin, which is that you get behind and you think you’ve got to break even that day. The first rule is that nobody goes home after the first race, and the second rule is that you don’t have to make it back the way you lost it. That is so fundamental.”

This was an important lesson that definitely influence Buffett’s investing later in life. You’re not supposed to be every race. Instead, just wait for the right pitch.

What Buffett and Munger both discovered is that making money in the stock market is much, much easier than making money at horse betting. For one thing, there’s no 14-25% track takeout. But it’s interesting how both markets teach similar lessons.