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On the surface, Rockwood was a simple transaction for Graham-Newman: Its only cost was subway tokens, thought, and time. But Warren recognized the potential for even more “financial fireworks” than Graham-Newman had.10 Unlike Ben Graham, he did not do the arbitrage. Thus he did not need to sell cocoa futures either. Instead, he bought 222 shares of Rockwood stock for himself and simply kept it.

Warren had thought through Pritzker’s offer carefully. When he divided all the beans Rockwood owned—not just the beans attributed to the cocoa-butter business—by the number of Rockwood shares, it amounted to more than the eighty pounds per share that Pritzker was offering. So people who did not turn in their shares would end up with stock worth more cocoa beans per share. Not only that—all the extra beans left on the table by those who did turn in their stock would bump the number of beans per share even more.

Those who kept their stock would also profit because they wound up with a share of the company’s plant, its equipment, money due from customers, and the rest of the Rockwood business that was not being shut down.

Warren had inverted the situation, thinking about it from Pritzker’s point of view. If Jay Pritzker was buying, he wondered, why did it make sense to sell? And after doing the math, he could see that it didn’t make sense. The side to play on was Jay Pritzker’s. Warren had looked at the stock as a little slice of the business.

With fewer shares outstanding, his slice was worth more. He was taking more risk than had he simply done the arbitrage—but he was also making a calculated bet with odds heavily in his favor. The $2 profit from the arbitrage was easy to earn, however, and riskless. When the price of cocoa beans dropped, the futures contracts protected Graham-Newman. They, and a significant percentage of other shareholders, accepted Pritzker’s offer and left a lot of cocoa beans on the table.

Hanging on to the stock, however, turned out to be a brilliant call. Those who played the arbitrage, like Graham-Newman, made their $2 a share. But Rockwood stock, which had traded for $15 before Pritzker’s offer, shot up to $85 after it was over. So instead of making $444 from his 222 shares, as he would have from the arbitrage, Warren’s calculated bet earned him an extraordinary sum—around $13,000.11

In the process, he had also made a point of getting to know Jay Pritzker. He figured anybody smart enough to have figured out that deal “was going to do more smart things later.” He went to a shareholders’ meeting and asked some questions, and that was his introduction to Pritzker.12 Warren was then twenty-five, Pritzker thirty-two.

Even working with a relatively small amount of capital—less than $100,000—Warren saw that by using this kind of thinking he could open up a world of possibilities for himself. His only constraints were the money, energy, and time he had available. It was lumberjack labor, but he loved doing it. This was nothing like the way most people invested: sitting in an office and reading reports that described research performed by other people. Warren was a detective, and he naturally did his own research, just as he had collected bottle caps and thought about fingerprinting nuns.

To do his detective work he used the Moody’s Manuals—Industrial, Banks and Finance, and Public Utility. Often he went down in person to Moody’s or Standard & Poor’s. “I was the only one who ever showed up at those places. They never even asked if I was a customer. I would get these files that dated back forty or fifty years. They didn’t have copy machines, so I’d sit there and scribble all these little notes, this figure and that figure. They had a library, but you couldn’t select from it yourself. You had to request things. So I would name all these companies—Jersey Mortgage, Bankers Commercial, all these things that nobody’d ever requested, ever. They’d bring them out, and I’d sit there taking notes. If you wanted to look at SEC documents,