Babysitting our four-month-old granddaughter for the first time was a prime excuse to watch the Traver’s Stakes, one of Thoroughbred racing’s highest level of competition for young horses. Code of Honor came from behind to beat the favorite and paid $10.80. During a nap (hers not mine), I spent entirely too much time thinking about the comparisons between managing equity portfolios and betting on thoroughbred horse races. I quote Charlie Munger from his Worldly Wisdom speech. “If you stop to think about it, a pari-mutuel system is a market. Everybody goes there and bets and the odds change based on what’s bet. That’s what happens in the stock market.” Each has “favorites” and success leads to monetary rewards. Very importantly one is always balancing risk and return. An investor/bettor is presented with a finite set of opportunities and extensive amounts of public information to utilize in the decision-making process. Success is not limited to any particular philosophy or process, rather it is governed by the decision reached upon the application of such. Some are more successful than others. The primary difference between the two is that in horse racing, each horse is equal weighted, whereas in stock investing, the creation of index funds and ETF’s leads to unequal weighting. In theory, neither the investor nor the bettor is required to make a monetary commitment, yet money flowing into and out of ETF’s and index funds skews the investing side. Additionally, many investment managers remain fully invested as well. You will find that most successful horse bettors do not bet on every race. Rather they are disciplined in adhering to their philosophy and process. Fortunately for the horse bettor and a small group of active investment managers, their success is not dependent upon such external forces. We here at Harmonic have a philosophy and process that is independent and repeatable. Growing up, Buffett used to go to the race track – either Ak-Sar-Ben Race Track in Omaha or Charles Town.