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Warren Buffett Reveals the Ugly Truth Behind Gambling

By Jordan Wathen - Feb 22, 2014 at 1:34PM

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Gambling may have shaped Buffett's drive to get rich in the stock market.

Source: Aaron Friedman.

Some say the stock market and investing are just like gambling, but the best investor in the world, Warren Buffett, doesn't think so.

Over the years, he's shared some very interesting quotes on gambling and investing, equating gambling to a simple "ignorance tax."

Here's some of his best rants and one-liners alike:

1. Gambling is "socially revolting."
At the 2007 Berkshire Hathaway shareholders meeting, Warren Buffett delivered his most critical opinion of casinos and gambling companies, stating:

"I'm not a prude about it, but to quite an extent, gambling is a tax on ignorance. You just put it in and guys like me don't pay the taxes -- it relieves taxes on those who don't gamble. I find it socially revolting when a government preys on its citizens rather than serving them. A government shouldn't make it easy for people to take their social security checks and [waste them pulling] a handle."

His position is simple: Gambling creates tax revenue, allowing governments to collect on the poor choices of others. And unlike other taxes, these taxes are borne by very few people -- those who choose to gamble. Countless studies reveal it is the lowest-income households that spend the greatest percentage of their income in casinos and lotteries, people who can least afford to lose money.

2. Teaching his kids a lesson
Buffett knows gambling is a zero-sum game, and profits -- for the casino, gambler, or wages for the worker -- only come from gamblers who lose money.

To teach his children a lesson, Buffett had a unique idea. He set up a casino in his own home.

I bought a slot machine a long time ago and put it on the 3rd floor of my house. I could then give my children any allowance they wanted, as long as it was in dimes, and I'd have it all back by nightfall. I wanted to teach them a good lesson. My slot machine had a terrible payout ratio, by the way.

3. When he knew he could get rich
Gambling taught Buffett a lesson -- getting rich wasn't as hard as it might seem to be. In a speech to MBA students, he revealed one event that changed his perspective forever:

On my honeymoon I traveled out west. When I visited the casino and saw all these smart well-dressed people participating in a game with the odds against them, it was then that I realized I won't have a problem getting rich!

This may have been a defining moment for Buffett. At the time, he was picking his own stocks, playing "stupid" by buying the cheapest possible companies he could buy. He'd search for companies selling for less than three times their annual earnings and special situations where he could acquire a company for less than the cash it had on hand. He wanted no-brainer investments that would make him rich.

Meanwhile, others were placing money on bets guaranteed to lose. These weren't dumb people -- they had money to blow in Las Vegas, after all -- but they weren't playing to win. They were playing games of chance where they were almost guaranteed to lose.

If smart people spent their time gambling, a smart, young Buffett could very easily get rich spending his time in the stock market. 

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