The students prepare for their first trip to Hogsmeade. Ginny brings Harry a parchment from Dumbledore arranging their next lesson. The students set out into the terrible weather, bundled up in cloaks and scarves. On their way to the Three Broomsticks, a local pub, Harry runs into Mundungus. Mundungus is struggling with a pile of items, and Harry notices that some of Mundungus’s things belong to Sirius. Harry is outraged and poised to attack, but Tonks appears and stops Harry from doing so, thereby preventing him from committing a grave breach of Magical Law. Harry, Ron, and Hermione enter the pub and order a round of drinks. They agree that the day has been a waste and decide to head back to Hogwarts, following Katie Bell and a friend out of the bar and into the cold sleet.
Katie is holding a package, which her friend, Leanne, tries to grab from her hands. Katie grabs it back and suddenly shoots up six feet into the air, screaming in pain. Harry, Ron, and Hermione run forward to help, pulling Katie from the air. Harry runs toward Hogwarts for help, encountering Hagrid along the way. Hagrid scoops up Katie and dashes toward the school. Leanne explains that Katie came back from the bathroom at the Three Broomsticks holding the package and told Leanne it was a surprise for somebody at Hogwarts and she had to deliver it. Katie had refused to say who had given her the package. When Katie and Leanne fought over the package, it accidentally opened and the silver and opal necklace inside was exposed. Harry recognizes the necklace from Borgin and Burkes. He brings it to Professor McGonagall, who orders the Hogwarts groundskeeper, Filch, to deliver it to Snape. Harry tells McGonagall that he believes Draco Malfoy gave Katie the necklace. McGonagall is extremely doubtful of Harry’s theory and informs him that Draco was in detention with her all day.
Katie is moved to St. Mungo’s for further treatment. Harry reports to Dumbledore’s office for their next lesson. They enter the Pensieve, this time rooting through the memory of Caractacus Burke, the co-owner of Borgin and Burkes. Harry and Dumbledore see Caractacus talking about Merope’s gold locket, claiming that he bought it from her for ten Galleons, an amount far below the locket’s actual value. Clearly, Caractacus took advantage of Merope’s desperation. When Harry asks Dumbledore why Merope didn’t use her magic to get food and shelter, Dumbledore explains that he thinks Merope was so devastated by Tom’s desertion that she either chose to stop using magic altogether or found her powers drained by her sadness.
Next, Harry and Dumbledore enter one of Dumbledore’s memories. A much younger Dumbledore approaches the door of an orphanage and asks to speak with the house matron, Mrs. Cole. When she arrives, Dumbledore explains that he is here to offer Tom Marvolo Riddle a place at his school. Mrs. Cole warns Dumbledore that Tom Riddle is a funny boy, and Dumbledore is not surprised. Tom regularly bullies the other children, killing one child’s pet rabbit and leading two other children into a cave at the seaside. After emerging from the cave, the two are never the same again. Mrs. Cole leads Dumbledore to Tom, who is handsome. Dumbledore introduces himself, but Tom is suspicious until Dumbledore tells him that Hogwarts is a school for magic. Tom is excited, but rude and belligerent, demanding that Dumbledore prove himself. In response, Dumbledore sets Tom’s wardrobe on fire with a flick of his wand.
Dumbledore puts out the flames and asks Tom to retrieve a box from inside his wardrobe full of things Tom has stolen from his fellow orphans. Dumbledore demands that he return them before enrolling at Hogwarts. Dumbledore offers to accompany Tom to Diagon Alley to purchase his school supplies, but Tom insists on going by himself. Tom also tells Dumbledore that he dislikes his name because it is too common. Harry and Dumbledore return to Hogwarts. On his way out of Dumbledore’s office, Harry notices that Marvolo’s ring is gone.
Harry is still mourning the murder of his godfather, Sirius. Sirius was Harry’s only living relative, chosen as his godfather by his parents, James and Lily Potter. He was killed at the Ministry of Magic a year ago while trying to protect Harry. In many ways, Harry feels responsible for Sirius’s death. At this point, every one of Harry’s family members has been killed trying to protect him. Harry cannot help but blame himself for Sirius even being at the Ministry in the first place, since it was Harry who led the Order of the Phoenix into Voldemort’s trap. Consequently, the sight of Mundungus, who is notorious for pilfering other people’s possessions and selling them on the black market, juggling Sirius’s belongings is unbearably hurtful to Harry. Harry is not necessarily upset that Mundungus has stolen Harry’s inheritance, as he cares very little about the material worth of Sirius’s belongings. However, Harry is devastated that Sirius’s things, Harry’s last connection to his murdered godfather, are being treated with disrespect and carelessly tossed around.