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What Young Buffett Learned at the Horse Track:

"Buffett formed many lifetime principles as a 16-year-old horse handicapper, including the importance of information, sizing bets, and having an edge over the opposition."

Buffett Learned Core Principles At The Racetrack

The most powerful investment instruction for the sixteen-year-old Buffett took place at the race track. Still back in Nebraska he and a friend started by "stooping" the floor for "place" and "show" tickets discarded by naive bettors disappointed that they didn't have the winner. In their naivete they didn't realize that their tickets paid out modestly for 2d and 3d place as well. There's a value investing metaphor somewhere in this which closely resembles Buffett's original model of picking up "cigar butt" stocks which were discarded but had one more puff in them.

What Buffett did next was more interesting. He and a friend put out a tip sheet called Stable-Boy Selections. To do this he began to study handicapping, and in the process learned such things as the fact that you could handicap by speed or by the class the horse had competed successfully against. They sold their tip sheet for a quarter until the race track shut them down. A year later with a teacher who was also interested in horses, he returned to the racetrack and instead of "stooping" or selling a tip sheet, he bought the best tip sheet, studied, and formulated a plan.

I'd get the Daily Racing Form ahead of time (he told biographer Alice Schroeder) 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 15 to 1 (implying only a 6.7% chance so that the payout probability exceeded the odds by about 50%)."

What Buffett had stumbled upon was the concept of having an edge, in this hypothetical case a 50% edge on what was admittedly a long shot, although betting on a large number of such long shots would likely be highly profitable. The basis of success was that you were betting against people who based their choices on the jockey's colors or the names of the horses. Implicit in this process was the most important principle behind any kind of betting, using edge/odds as a guideline for sizing bets or deciding whether to bet at all..."

https://seekingalpha.com/article/4376207-buffetts-surprising-new-moves-fit-core-principle-edge