The lessons you learn at the beginning of your life have an exponential impact on the rest of your life.
Experiences in the first few decades of your existence help develop who you are as a person and the lessons learned contribute to developing your personality. In the early years, we develop our most important reflexes. Learning that fire is hot, for example, and that pain is bad.
Most children learn the vital skills they need to succeed in life at school or from their parents. For a young Warren Buffett (Trades, Portfolio), however, one of the most important lessons he learned in his formative years was not discovered at school or from his parents.
He learned the lesson that has had one of the most profound impacts on his life and investing career at the racetrack.
Losing it all
The early years of Buffett's career have been well documented. Unlike most people, his business empire started to take shape in 1936, when he was just six years old. He began by selling Juicy Fruit chewing gum packs and Coca-Cola six packs. Five years later, using the savings gained from his simple retail business, he made his first investment: six shares of Cities Service at $38 per share.
The young businessman learned his first investing lesson with Cities Service. After falling to $27, the stock recovered to $40, where he sold. After that, it shot up to $202. Buffett has since cited this experience as an early lesson in patience.
In his early teens, the future CEO of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) filed his first tax return. By 15, he was making $175 a month selling Washington Post newspapers, which enabled him to buy 40 acres of farmland in Omaha, Nebraska.
Around this time, he learned what is possibly the most valuable lesson any investor can learn.
According to his biography, Buffett once tried his luck betting on horses. This turned out to be a colossal mistake. He lost his first race but kept betting, and losing. In the end, he lost $175, a sizable sum for the teenage investor. After this string of losses, he debriefed himself to find out what went wrong:
"I came back. I went to Hot Shoppe, and I treated myself to the biggest thing they offered - a giant fudge sundae or something - and there went all the rest of my money.
While I ate, I figured out how many newspapers I had to deliver to make up what I had lost. I was going to have to work more than a week to make back the money. 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, you know."
Buffett discovered that gambling can be a quick way to lose all of your money, and trying to take on the rules of luck is a fool's errand. He has carried this lesson with him since then.
Rather than try to guess or bet on outcomes, it is better to invest in situations where the odds of success are in your favor and not just 50-50 (or worse). Another valuable lesson he undoubtedly took away from this dark day is the importance of patience and not rushing to get ahead.
It is also interesting to note his second rule is "you don't have to make it back the way you lost it." In other words, it is perfectly acceptable to dump a losing investment if it is not going your way and switch it out for something else.
This is just one of the many experiences that helped Buffett build the fortune and reputation he has today.
Disclosure: The author owns shares of Berkshire Hathaway.
