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Good article


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Brilliant, thanks for posting!


The part I found most interesting was where he produced a tip sheet that handicapped horses at an Omaha race track. He called it "Stable Boy Selections". Here's an excerpt which seems to provide the bare bones of his investment process.




Warren discovered the Rules of the Racetrack:
1. Nobody ever goes home after the first race.
2. You don’t have to make it back the way you lost it.
The racetrack counts on people to keep betting until they lose. Couldn’t a good handicapper turn these rules around and win?
“The market is a racetrack too. But I was not developing elaborate theories in those days. I was just a little kid.”
Buffett started to see that markets were generally roughly efficient but that there was plenty of opportunity to exploit mispricings if one paid close attention.
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. But I wouldn’t look at the odds first, to avoid prejudicing myself. Sometimes you would find a horse where the odds were way, way off from the actual probability.You figure the horse has a ten percent chance of winning but it’s going off at fifteen to one.”
The less sophisticated the track, the better. You have people betting on the jockey’s colors, and you have them betting on their birthdays, you have them betting on the horses’ names. And the trick, of course, is to be in a group where practically no one is analytical and you have a lot of data. So I would study the forms like crazy when I was a kid.”
Long before getting serious with stocks, Buffett was learning how to think in bets, how to recognize the impact of human psychology and decision-making biases in markets, and how to develop an edge in investing. He did it by finding a field of practice that was fun and interesting to him.
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