Warren Buffett on the lottery of birth

One of the reasons J.D. asked me to join his merry band of GRS writers was so that I could add the occasional investing lesson to the line-up. Today, I'm going to hand that duty off very quickly to someone else, and then get to a life lesson from a great investor.

Today's lesson comes from fund manager and former Motley Fool writer Whitney Tilson, whose Tilson Focus Fund (TILFX) has the best one-year return in Lipper's multicap core category, according to Barron's. In a recent interview on GuruFocus, Tilson said he began his investing career by reading all of Warren Buffett's letters. If that sounds like good advice to you, every Berkshire Hathaway annual report since 1977 — which include Buffett's letters — can be found at the Berkshire website. (If you have a yen to hear Buffett sing as well as read his words, check out his cameo in this GEICO video.)

The Luck of the Draw

But if you'd like some other kind of wisdom from Buffett, here's a scenario that he often describes in speeches and interviews. (We've now moved into the “life lesson” part of this show.)

It's 24 hours before your birth, and a genie appears to you. He tells you that you can set the rules for the world you're about to enter — economic, social, political — the whole enchilada. Sounds great, right? What's the catch?

Before you enter the world, you will pick one ball from a barrel of 6.8 billion (the number of people on the planet). That ball will determine your gender, race, nationality, natural abilities, and health — whether you are born rich or poor, sick or able-bodied, brilliant or below average, American or Zimbabwean.

This is what Buffett calls the ovarian lottery. As he explained to a group of University of Florida students, “You're going to get one ball out of there, and that is the most important thing that's ever going to happen to you in your life.”

According to the world's third-richest man, that's a good perspective to have when setting the rules for our world. We should be designing a society that, as Buffett says, “doesn't leave behind someone who accidentally got the wrong ball and is not well-wired for this particular system.” He points out that he is designed for the American system — and he was lucky to be born into it. He can allocate capital, and he lives in a place and at a time when those skills are well rewarded. (His pal Bill Gates is quick to point out that if Buffett had been born in an earlier time, he'd be some animal's lunch because the Oracle of Omaha can't run fast or climb trees.)

When Buffett talks about this lottery, he often concludes by asking:

If you could put your ball back, and they took out, at random, a hundred other balls, and you had to pick one of those, would you put your ball back in? Now, of those hundred balls … roughly five of them will be American. … Half of them are going to be below-average intelligence, half will be above. Do you want to put your ball back? Most of you, I think, will not. … What you're saying is, “I'm in the luckiest 1% of the world right now.”

A Matter of Perspective

This is a good perspective to keep in mind as we bemoan our smaller 401(k)s and shriveled home equity. Chances are, you're not worth as much as you were a few years ago, but you're still much, much richer than the vast majority of people in the world. We live better than most people, and even better than Americans from 20 years ago, who didn't have the Internet, email, cell phones, iPods, GPS devices, and SpongeBob, not to mention scores of medical and pharmaceutical advances.

This is not to minimize the difficulties of the past couple of years, or to say that some Americans don't live wretched lives due to tragedy or severe health issues. But as J.D. has written before, research indicates that gratitude is a key ingredient to happiness. If you wouldn't be inclined to turn your ball back in for another draw at the ovarian lottery, then thank your lucky stars. I sure I do.

J.D.'s note: One of my goals for the next few weeks is to sit down and read all of Buffett's shareholder letters. Even before Robert submitted this article, I downloaded them all, and I'm waiting to plop them on my iPad this Saturday so I can read them on my flight to Chicago. As I've mentioned before, Buffett is one of my financial heroes, and I admire his philosophy.

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Adam D
Adam D
10 years ago

‘I’m waiting to plop them on my iPad’

Dude, did you just show off?

Writer's Coin
Writer's Coin
10 years ago

What’s going on in Chicago?

Random Thoughts of a Jersey Mom
Random Thoughts of a Jersey Mom
10 years ago

Great article. Many times we complain about the state of things in this country or how bad the economy is but we do need to remember that we have so many things to be thankful for!

I am grateful for living in a free country where I won’t be arrested for voicing my opinion.
I am grateful for having lovely children and devoted husband.
I am grateful for having good health.

Mike
Mike
10 years ago

The political philosopher John Rawls has a lot to say about the scenario you quote from Buffet — the point being the same, that we ought to design a society’s founding principles from behind a “veil of ignorance” where we don’t know who we’ll end up being.

Not sure who came up with this first — Buffet, Rawls, or (more likely) someone else who never receives credit for it — but it’s an attractive way of thinking… I agree that this sort of thought experiment can be a humbling source of perspective.

kai
kai
7 years ago
Reply to  Mike

I read the idea of ‘birth lottery’ as a call for gratitude for the cards we are dealt at birth and as a heads up that those born in less fortunate conditions, be that geographical, familial, cultural, arrived with a harder hand – no Ace, no pairs, a couple jokers.
Gratitude is indeed valuable. So is humility and engaged compassion.
For all the rhetoric of pulling ones self up by the boot straps, one needs boots to begin with. It’s not impossible without boots, just a whole lot harder.

Sam
Sam
10 years ago

Absolutely, there is a web site where you can enter in your net worth or your annual salary and it tells you how you stack up against the rest of the world. Most people reading this blog will come out in the top 1% or the top 10%. I know how lucky I was to be born to parents with advanced education, who valued education at a time when women had more choices regarding birth control, education and careers. But that doesn’t mean we shouldn’t be striving for more equality among the men and women, among the races, universal health… Read more »

DreamChaser57
DreamChaser57
10 years ago

I enjoyed this post quite a bit, especially the SpongeBob reference as I am a devoted fan! It’s so important to let gratitude shape and inform your perspective. Gratitude and humility I believe are the two pillars of good character. Thanks for the handy link; I’ve long since heard that Buffet’s shareholders letters are inspirational. It will be great to see Buffet’s devotion to his principles of choosing growth companies based on value and not allowing his emotions to run amuck every time market storms come. JD – are the details finalized yet for your Chicago book signing? I don’t… Read more »

Beth
Beth
10 years ago

I’m glad to see someone addressing this issue! All too often I read things like “start your own business” or “get an advanced degree” or “get a higher paying career” and I shake my head. As a former teacher, I’ve seen nearly the full gamut of people entering the workforce in my area (I say “nearly” because I didn’t see the ones who had already dropped out.)

It’s easy to see how people get left behind, even in North America.

Rob Bennett
Rob Bennett
10 years ago

Buffett is right on. Gratitude is indeed essential. The one area in which Buffett disappoints me is that he does not speak up strongly enough in opposition to those who say it is okay to ignore valuations when setting your stock allocation. He makes the point often. But it is a point that must be made forcefully if we are to counter the Get Rich Quick impulse that draws us to believe that Bull Market gains are real. We live in a wonderful country. But it’s not an automatic that it will always remain that. We need to be willing… Read more »

Tom
Tom
10 years ago

#6 Spongebob definitely makes our lives much more enjoyable 🙂

Mike
Mike
10 years ago

This is excellent insight. Instead of bemoaning our luck, most of us reading this post are probably in “better shape” than the majority of others in the world. More importantly, most of us have the ability to change our lives and realize a noticable impact. In other places in the world (the other 80%) it’s not going to be felt as much. So, what will you do, now that you realize this? Gratitude. It has me greatful this morning.

J.D. Roth
J.D. Roth
10 years ago

@Adam D (#1)
I’m not showing off so much as publicly rationalizing, trying to justify my purchase. 🙁

@DreamChaser57 (#6)
No details on the Chicago meet-up. I know, I know. Time is getting short! I’ll ping Chris and Alexandra later today to see if they know anything else…

Alexandra
Alexandra
10 years ago

Thank you for this article. Sometimes it is easy to forget just how lucky I am, and what could have been if only I had been born elsewhere.

Mike Panic
Mike Panic
10 years ago

Or you could just read Malcolm Gladwell’s Outliers, which picks apart the potential success rate based on the date and time you are born and is a pretty amazing eye-opener.

Bill
Bill
10 years ago

What about my grandparents who moved here from Ireland? They greatly affected my “lottery” outcome. It seems like hard work not luck. It was just hard work performed over 100 years ago by my family.

lostAnnfound
lostAnnfound
10 years ago

#14 Bill, I agree. My mother came over from Ireland in the 50s as a 21 year-old. Where she was from was all farm land and fishing on the Atlantic. They didn’t even get electricity in the part of the county until 1969, something that as a kid myself at that time I took for granted over here. I feel fortunate to live in the USA where there is so much to be thankful for and so many opportunities.

Raghu Bilhana
Raghu Bilhana
10 years ago

“How you take birth in this life depends not on the choice given to you before your birth but on your actions and deeds in your previous life”. This is a saying from my religion. This is the main essense of the word “KARMA”. Based on the above quote, if you had done good deeds and lived a great and good life previously then you will be born into a good life and have a good life. If everybody were given a choice to choose his or her life then I am sure most of them want to be Bill… Read more »

April
April
10 years ago

RE: “We live better than most people, and even better than Americans from 20 years ago, who didn’t have the Internet, email, cell phones, iPods, GPS devices, and SpongeBob, not to mention scores of medical and pharmaceutical advances.”

I’m not convinced that all of the things in that list truly help us “live better,” even if they are fun diversions. 🙂

fantasma
fantasma
10 years ago

This is a great reminder to always be greatful and thankful. thanx jd.

Melissa Gomez
Melissa Gomez
10 years ago

@#14 & #15: I think that is the point. That no matter what/where/to whom you were born, we are all essentially the same.

I have seen many kids born priveleged that never make anything of themselves; and I have seen many disadvantaged kids build great lives for themselves. It’s what you do with yourself that matters.

Marco K
Marco K
10 years ago

I absolutely love this post. The end point has been covered countless times by other people – the fact that if you have you health, food, water, and a home….you are very lucky.

But just the way he phrased it all, it really reemphasized the point very well. Nearly everybody who can spend leisure time reading a blog as opposed to fighting just to survive should feel pretty lucky.

Marian
Marian
10 years ago

I agree that gratitude is in short-supply among many Americans who focus on becoming richer, or shoring up their 401Ks. Being grateful is something I need to remind myself of periodically. Most Americans are richer than the vast majority of the world. But like others, I don’t think too much of the consumer stuff we’ve acquired over the past twenty years. Our schools, bridges and roads are falling apart. Real wages are in decline and education (which is different from schools) has also declined. Despite many wonderful people in the country, the culture has become a coarser, nastier, consumer-driven society… Read more »

andy
andy
10 years ago

This post was a great way to start my gloomy morning here on the east coast. I too, am guilty of not always being grateful.

After reading this I feel like I should add a part to my monthy money meeting with my husband to take some time to appreciate and be grateful for all we have. Or is that too off topic for a money meeting?

Thank you for such a positive post 🙂

Erin
Erin
10 years ago

Several years ago, while feeling really sorry for myself and feeling like I ‘belonged’ in a different part of the city, like I ‘deserved’ to be living a different lifestyle, I saw a woman standing at the bus stop, snow up to her knees, in a coat that didn’t look warm enough for the weather, no scarf or gloves. At that very moment, I realized how lucky I was! I’m thankful for that day, because I made a decision at that moment to be thankful for everything I have! I had been so blinded by consumerism and what I didn’t… Read more »

Shara
Shara
10 years ago

I am grateful and realize how lucky I am. I think of life for females before guns, when men rules the world with swords and muscle and I’m happy to be ‘civilized’. But while I agree we all need to keep in mind how much of our lives is due to chance, I think too many people seem to focus on it. Why bother meditating about things outside your influence? To me it’s much like people who spend their lives looking back and thinking ‘if only’. They make this alternate reality in their heads where everything would be better. ‘If… Read more »

Tracy
Tracy
10 years ago

@#14Bill: The point Warren Buffet is trying to make is that YOU had nothing to do with whether or not your grandparents worked hard for your success. No one chooses to be born into a set of disadvantages. That is where the luck of the draw comes in. Of course, it is then up to each individual to choose if/how they will use whatever advantages they do have, and if/how they will overcome any disadvantages. @#20Marco: “Nearly everybody who can spend leisure time reading a blog as opposed to fighting just to survive should feel pretty lucky.” Very well stated!!… Read more »

Patrick
Patrick
10 years ago

After a depressing day at work yesterday – this was a great pick me up. I was lucky to be born in this country in these times. An attitude of gratitude always helps. Now it is up to me to be grateful for the situation I find myself in and work hard to make it into what I dream. The danger comes, at all levels, when you realize that by luck you were landed in a less than optimal situation. Depression sets in when you bemoan the fact and let it rule you. Action to change the fact will improve… Read more »

Steve
Steve
10 years ago

“Chances are, you’re not worth as much as you were a year ago”

How long ago was this article written? One year ago the stock market was at it’s lowest point… I don’t know about the author, but I know my net worth has gone up significantly since then.

Budgeting in the Fun Stuff
Budgeting in the Fun Stuff
10 years ago

It’s good to be reminded to be thankful…the first step to where I am today started with what parents I had. I think I was placed well. 🙂

Maharani
Maharani
10 years ago

RE: We live better than most people, and even better than Americans from 20 years ago, who didn’t have the Internet, email, cell phones, iPods, GPS devices, and SpongeBob, not to mention scores of medical and pharmaceutical advances.

I was living here 20 years ago and perfectly happy without all this junk. It doesnt enhance my life-just fills it up and eats my money. Mostly it doesnt work that well eithe-junk tech. PIck a different example please.

J.D. Roth
J.D. Roth
10 years ago

@Steve (#27)
Yeah, Robert caught that error, but we didn’t get it fixed before you commented! 🙂

Dan
Dan
10 years ago

There appears to be an assumption that births are distributed and chosen randomly. This is not the case. For example, a child with two European parents has a very small chance of being Chinese. Under the logic presented here, one would assume any child born has a high chance of being Chinese. Your place in life is not randomly chosen for you, but passed down by the hard work your parents and grandparents. I am hesitant to buy this fact that my place in life is based on luck. This is simply not true. It is the product of those… Read more »

RJ Weiss
RJ Weiss
10 years ago

@JD – Enjoy Buffet’s letters. I did this once in college and learned a lot.

I’m amazed at how well of a writer he is. He can turn a very complex subject into an argument about the price of cheeseburgers.

Nicholas
Nicholas
10 years ago

I would agree with some of the other comments about the social welfare system and how it is connected to Buffett’s comments. This really comes back to John Rawl’s “Veil of Ignorance,”an which he argues that we should conduct social policy like Buffett’s lottery – you don’t know what challenges you will face in your life due to the circumstances of your birth, so it should be in your interests to advocate for policies that will protect you in the worst of situations – disability, medical problems, poor upbringing, etc. This seems to be a key element that not all… Read more »

Moneymonk
Moneymonk
10 years ago

Your only happy if you rank #1 within your circle of friends/family

If everyone around you make the same as you do, we usually feel mediocre

Andrew Ross
Andrew Ross
10 years ago

F*** luck! If you have a great personality and work your ass off you will win in life.

Nicole
Nicole
10 years ago

not just a writer– he’s also apparently a great singer… Re: the IPad… it does sound like you bought it a little too soon for comfort. That’s ok, you have monetary wiggle room for mistakes. Unless you can cancel the order, it’s a sunk cost and you should just take the lesson (the item won’t be going away, so wait until you don’t feel you need to justify the purchase) and stop worrying about it. Or maybe you really did need to replace a laptop ASAP and this was the best choice, in that case it was bad timing on… Read more »

Andrea
Andrea
10 years ago

I think some people may be thinking too scientifically about the argument that births are random. I think the argument in the article is more philosophical. For instance, consider that you consist more of your spirit than your actual physical body. Your spirit could have ended up in any person anywhere in the world. At least that’s how I interpreted it.

Michael Crosby
Michael Crosby
10 years ago

I bookmarked 5 of his links. That alone makes the article invaluable.

I have nothing to add. I just want to thank you for a great blog and how much I enjoy spending time here.

Chickybeth
Chickybeth
10 years ago

@Dan #31 The whole point of the argument is that to whom you are born IS the luck of the draw. If you chose 1 person from anywhere on earth, he/she would have the theoretical same chance of being born to “your” parents. That your family has worked hard over the years to give you a good life is the “lucky” part. Ever since I read “Outliers”, I have thought about how lucky I have been in life, and how to use that luck to my advantage. Sometimes, it gets easy to feel unlucky when all we see on tv… Read more »

Tyler Karaszewski
Tyler Karaszewski
10 years ago

It’s hardly a lottery. I’m no more lucky to be born American than I am lucky to be born human. How many animals are born every day compared to people, do I count myself lucky not to be born one of them? Given that my parents were American, there were pretty certain odds that I’d be born American. If someone (obviously not me, since I wasn’t born yet) were to come to my mother 24 hours before I was born, and say “I hope your child is born American, there’s only a 5% chance of that!” he would have drawn… Read more »

Neel Kumar
Neel Kumar
10 years ago

I don’t believe in rebirth. I don’t believe in heaven or hell. I don’t think there is a “great accountant in the sky” tallying up everyone’s good deeds and sins. Whatever there is – is right here. When we do good, we create heaven around us. When we do bad things, we create hell in our own neighborhood. Every time I see homes with bars on the windows and doors, I see hell on earth. I think Warren Buffet would agree with me – We, as a society, need to improve the situation on a daily basis. Be it by… Read more »

Zeb
Zeb
10 years ago

Great description of Rawls’ contributions to political philosophy: Original position reflects “what principles of justice would be manifest in a society premised on free and fair cooperation between citizens, including respect for liberty, and an interest in reciprocity.” Those rules are arrived at behind the “veil of ignorance” – i.e., that you don’t know which lotto ball you will get. The result: the rules should help the worst off before benefiting others. However, his second book says that this only applies to, essentially, western democracies. I.e., You don’t need rules to help someone who’s worse off in Africa, just in… Read more »

Ms. Clear
Ms. Clear
10 years ago

Luck is often underrated as a factor in life. Buffett is completely right on. Good for him for understanding the big picture. There are far too many who don’t get it.

Chris
Chris
10 years ago

Who’s SpongeBob?

LiveCheap.com
LiveCheap.com
10 years ago

I think the only thing missing from this discussion is the fact that many people have all of these things going for them and still do poorly in life. You could chalk that up to some random aspect of their personality that existed the moment they were born (and having kids, you can definitely see early traits that bear out over time). But many people make their own luck through ridiculously hard work. I don’t know that I’d say that focus on work was evident the day someone is born. Reading Buffett is something that everyone that puts money in… Read more »

Paul in cAshburn
Paul in cAshburn
10 years ago

@ #16: “if you had done good deeds and lived a great and good life previously then you will be born into a good life and have a good life” Does this not imply that since most people are not born into a good life nor do they have a good life, that most people did bad deeds and lived a bad life previously??? Seems pretty dark and accusatory… unless the point is that everyone can have a good life next time – if they will just live a better life this time around? So, behavior in the world creates… Read more »

Joan
Joan
10 years ago

I am deeply grateful for the ball I drew i.e living in the US, healthy (at least until the reform begins) etc.

My problem with Buffett is that he seems to think that the way to correct the situation for people with the bad balls is to take a good ball from someone else. This is problematic as many of us apply a great deal of elbow grease together with our ball. Why not create a system that provides freedom and opportunity for everyone regardless of their ball?

Jim
Jim
10 years ago

So what’s the point, we should stop evolution in it’s tracks?

Jeff
Jeff
10 years ago

In my life, I have had to work hard and sacrifice at every step in order to get a college education, get a good job, and own my own home. And I know in my heart that I am a lucky bastard. Because I also know that most people in the world don’t have that opportunity. Even today, in 2010, the opportunity to work hard and sacrifice, in a way that makes a material difference to your well-being, is a privilege that is limited to the few. I’ve been given opportunities that even many Americans don’t see in their lives… Read more »

squished18
squished18
10 years ago

I don’t like the argument that since we’re richer than most people, that we should be happy about it. To me that implies that if I found myself poorer than most people, I should be unhappy. Wouldn’t it be better to be able to be happy even if everybody were richer, but my needs were met?

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