Maiden King

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They say that horse racing is the sport of kings and degenerates.

But really, when boiled down to its essence, horse race handicapping is just an information game much like the stock market. And arguably the most successful stock investor of all time, Warren Buffett, spent his formative years at Ak-Sar-Ben and Charles Town trying to figure out the horse racing game.

“The art of handicapping is based on information,” Buffett said in “The Snowball” his memoir written by Alice Schroeder and published in September 2008. “The key was having more information than the other guy— then analyzing it right and using it rationally.”

Doping out the horses seemed a natural for Buffett because it combined two things that he was good at: gathering information and math.

Sold a tip sheet

Buffett’s father did not like attending the races, so Warren began going with  either his uncle Frank or the mother of his friend Bob Russell would bring them. Buffett, who wasn’t even a teen-ager when he started going to Ark-Sar-Ben, was too young to bet so he made money stooping for tickets. Then his entrepreneurial spirit kicked in and Buffett and Russell began a tip sheet called Stable-Boy Selections.

“We got away with it for a while,” Buffett said. “They weren’t the hottest sellers in the world. I mean, a couple of little kids selling this thing we typed up in my basement on an old Royal typewriter.

“We were at the track, yelling ‘Get your Stable-Boy Selections!’ But the Blue Sheet was the number-one tip sheet, and the race track was getting a commission on it. The Blue Sheet sold for a little more. At 25-cents, we were a cut-rate product. They shut down the Stable Boy Selections fast because they were getting a cut on everything sold in the place except us.”

World’s richest man

Buffett, who was born in 1930, was named the world’s richest man by Forbes magazine in 2008 with a net worth of $58 billion. However, that was before the stock market began it’s 2008 freefall. He is currently the chairman of Berkshire Hathaway, a diversified holding company with large stakes in Coca-Cola, Proctor & Gamble, Johnson & Johnson and American Express.

Although Buffett lived most of his life in Omaha, NE, he did not live all of it there. In 1942, Warren’s father Howard Buffett was elected to the U.S. House of Representatives. Buffett moved with his family from Omaha, NE to Washington D.C. and used the opportunity to upgrade his handicapping skills.

Buffett knew that the Library of Congress had access to every book ever written so he asked his father for a favor.

“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.

Sent away for old racing forms

“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.”

Buffett broke down the handicapping world into two distinct types, those whose main focus was speed and others who valued class over speed.   Speed handicappers like horses who run fast times, while horseplayers who value class prefer those runners dropping down into cheaper races, Buffett said.

“In horse racing, it pays to understand both types of handicapping,” Buffett said. “But back then I was basically a speed guy. I was a quantitative guy to start with.” 

Booked action on the Preakness Stakes

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.”

Went 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,” Buffett said. “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.”

Editor’s note: MK is a Bershire Hathaway shareholder and attended the 2011 Annual Meeting in Omaha, NE.