Wednesday, June 23, 2010

Warren Buffett's Sports Book

Warren Buffett continues to show us that when your portfolio gets too big, you have to get creative in order to generate market-beating returns. With Monday's loss by the French at the FIFA World Cup, Buffett is a few million dollars richer, as he is now showing us how to apply value investing to arenas outside of the normal investing world.

Surprisingly, this was not a personal bet that Buffett placed, which we've seen him do in the past. Instead, Berkshire Hathaway was on the hook for about $30 million had France won the World Cup! The fact that he used company money to place the bet suggests a seriousness to the wager that would not be present had this been a fun, personal side-bet.

So why would Buffett be taking serious sports bets of this nature, when there is a whole industry dedicated to working out the odds that will result in maximum profits? It's possible that this particular bet was so large that no casino would take it, and so Buffett was able to earn a premium on the regular odds for offering such a handsome payout.

On the other hand, maybe the Oracle of Omaha knew something about the French team that allowed him to offer better odds than the bookmakers. After all, not only did the French get ousted from the tournament early, but they completely embarrassed themselves as well. The actions of the players against their coach would normally seem astonishing, until you consider that their coach makes some of his personnel decisions based on astrology! Buffett has a lot of experience making money off of those practicing astrology, which is a trading "tool" that was often utilized by the earliest technical analysts.

More on the story is available here.

Disclosure: Author has no position in the fortunes of any World Cup team


Unknown said...

Wait, Buffet betted 30 mil on the France game with Berkshire-Hathaways money? And that is ethical how?

Saj Karsan said...

Hi ak,

Why is it unethical to make a bet? That's how money is made in the casino business, the insurance industry, and other industries where companies make investments with uncertain returns (which can sometimes be 0). What businesses try to do is place bets where the odds are in their favour. You could call this particular bet an 'insurance policy' Berkshire wrote if you wish.

Unknown said...

ah, I read the article, he sold insurance policy (well not Buffet, but Ajit Jain). Thought he actually took a straight bet on the game in Vegas or online or thru a bookie.