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Please don't get me wrong. I was by no means putting you down for trying to estimate option costs.

You're right, mea culpa. Sorry to get my back up.

As for options, I don't have a grounding in the full theory behind B/S but I have a fairly low level of confidence in the the quants who have supposedly calculated all the variables and can tell us to the nth degree how much risk is assumed through this or that hedging strategy and what the profit on it will be by next Tuesday at 11 am. I doubt that using volatility and the risk-free rate to estimate the future prospects of a company is very accurate. Perhaps if markets were efficient, but since I believe they frequently are not, it's not a very good pricing model. So I guess you're right, if I did have a better idea, I could make more money in options.

Based on Munger's comments alone, it would be worthwhile to consider making some sort of adjustment to an option valuation to account for inadequacies in B/S. It would be hard to do though without some better understanding of what an option is really worth. Buffett seems to have an idea since he's indicated on multiple occasions that he'd be open to accepting payment in options rather than cash for a variety of things.

I also agree that management's behavior can be the linchpin in the go/no-go decision. I guess my implicit assumption is that I've already accepted that management's actions in this case are not deliberately harmful but more the product of ignorance regarding the true cost of options. Because I believe that's the case, and because other factors of this company are compelling, the last step is to try to estimate how these options will affect the economic earnings of the company. It would be irresponsible not to, since we know that they will have some effect which ultimately must be reflected in the purchase price if an investor expects to see a given return. The effort may be imprecise, but it's better than the implicit assumption when options aren't valued at all.

I guess that what I am trying to say is that only because a crook was not successful at robbing the bank doesn't make him less of a crook.

Doesn't this imply that the SEC has a lot more work to do? Although they're having a hard enough time nabbing the ones that were successful, much less those that weren't.
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