The World The Way Warren Buffett Sees It
From an early age, the Oracle of Omaha knew that information foretells the future.
Since he was a little lad, Warren Edward Buffett has lived in two different worlds. He can reach out and touch the first. It is inside his head crunching numbers and calculating probabilities of everything from bond yields to buyout prices. The other world is everybody else.
Buffett derives great satisfaction from the first world, which ultimately made him the wealthiest investor in the world — or, more precisely, the world’s richest bookmaker of market probabilities. However, the second serves an equally important purpose. It is there to confirm his hunches. For instance, every morning he makes his way to McDonald’s for breakfast, which ordinary people find amusing. With his money, Buffett can afford the best — a Three Star French chef would be delighted to stop by and cook Oeufs Cocotte for him. But Buffett figures the odds are better than decent he’ll enjoy his meal at Mcdonald’s for a fraction of the price even more. He’ll always take better odds.
Countless games of chance go on regularly in our lives every day. They may be invisible, but they are there, and we are players no matter what we think. Shakespeare’s Ophelia said it best: “We know what we are but know not what we may be?” When Buffett was just eight years old he was first introduced to the concept that would become his life’s profession. “Scooping bottle caps out of the wells beneath the ice chests where they had dropped when customers popped their sodas open.” He became curious about what those caps meant and would ride his bike around collecting them from gas stations around Omaha. It was his introduction to the concept of probabilities.
Pepsi, Coca-Cola, root beer, and Cott’s Ginger Ale bottle caps resembled columns of a spreadsheet as they mounted on his basement floor. Most people would tell their son to throw them in the garbage. His father, Howard Buffett, gave Warren plenty of leash. That is how he came to see learn the value of good information. It was sortable, countable, speculative, and, most importantly, free. To young Warren Buffett, the bottle caps revealed insider knowledge of the owners’ preferences, ages, genders, and the particular season they preferred. He would remember what he had learned for the rest of his life.
Like everything else, Buffett’s interest soon turned into an obsession. As a way to pass the time, while he was in the hospital recovering from a nasty case of appendicitis, his aunt Edie brought him a toy fingerprinting kit. It didn’t take long to seize the opportunity to play the odds. He invited the nun nurses to stop by his room so he could take their fingerprints while meticulously recording names and whatever other information he could glean. It all went down on a file he would keep at home.
Most who came to visit questioned why someone might want a nun’s fingerprints. They failed to see the world as Buffett saw it: “Nothing was impossible.” He believed there were odds that “one day, a sister might commit a crime, and when that day came, I would know the perp’s identity.” The lesson Buffett learned was good information allows you to handicap the future and, given Buffett’s competitive streak, stay ahead of the pack. The key was information, understanding what it meant, and using it to gain an advantage. From that, he moved on to stamps and coins before buying his first shares of stock at age 11. Buffett wasn’t just a slot machine with legs.
He was starting to get how the market operated, even the slender trade in crooked nuns.
