Alex Trias

'Pleased but Not Satisfied' by David L. Sokol: A Must-Read for Berkshire Shareholders

Yes, Buffett is obviously an asset that cannot be replaced - a fact the man himself is certainly aware of. He's also a strategic, long-term thinker. What he's done at Berkshire is to create a system of core values that will long outlast his tenure at the company. For instance, the basic business model at Berkshire is to pick great managers, to get out of the way, and allow them to unlock their company's potential. I doubt that when Buffett is gone, Berkshire will abandon that principle. At the end of the day, Buffett's value is not actually his investing prowess - in fact, with only a few exceptions, Buffett doesn't even try to hit the ball out of the stadium anymore, as he did in the 1980s. Buffett's value is that he's created a unque, and hopefully lasting architecture of principles at Berkshire. The question is how well his successor can implement those principles, but keep in mind that Buffett has already empowered a vast team of managers who implement those principles every day. In a sense, his "successors" have been running the company's businesses for a couple of decades now, and we've seen how well that's worked.

Improving the Black Scholes Model

That's a very good point - and your point about ultra high volatility days does should go against my point on mis-pricing.

Thanks for your comment!

On Mar 18 11:50 AM F. Bradeen wrote:

> You are right for long term options of a year or longer to consider
> the long term trend, but there is a third very serious problem with
> the Black Scholes Model and that is the assumption of a Normal distribution.
> (Lets forget that stock returns are more log normal than normal for
> the moment.) The Normal or log normal distribution does not take
> into consideration the fat tails on both sides of the distribution.
> And let me tell you they are enormously fat. This will lead you to
> seriously underestimate the value of any option, whether long term
> or short term. In fact, I doubt any serious investor uses the Black
> scholes as it currently stands. If so, they WILL be wiped out on
> days like Oct. 19, 1987 where the market went down 25% in one day.