hey , we are back to a civilized discussion, congrats... I mentioned I am done with this topic, there is not enough info plus its not even remotely his most important position and I recommend you to move on as well.
OK, so you can't answer or even offer a possibility of why Buffett has reserved EXACTLY his absurd modeled-loss in GAAP reserves. This is his largest marked-loss, even assuming his fantasy MTM. To answer your question; 37.1 * .25 = $9.275B at expiration. So there is no accounting for the net-position. This cannot be used as analogy for the MTM loss, as the GAAP reserve pool = Berkshire's interim modeled-loss on the $37.1 notional.
that was not my question, lol. You are losing focus or never had any. Hail to Warren, I am outa here ... have a good one everyone...
I've read that these are non-standard puts and challenge anyone to post an authoritative link showing the pertinent details of ALL contracts which, as of time of the annual letter, expire between 2019 and 2028. Does anyone even have a credible breakdown of Berkshire's exposure to each of the four indexes? Without the necessary specifics, one simply can't draw the conclusions one needs those details to calculate. Duh!!!, That $delta was obviously wrong but the newly revised number, although now plausible, is almost certainly wrong too... but I can't say exactly how wrong because I don't have all the inputs and I doubt anyone else does outside Berkshire. One conclusion that can be drawn is that it's the height of ignorance, arrogance and stupidity to speak of the world's most successful investor as if he just fell off of a turnip truck -- especially without all the facts. But the kind of people who do that aren't concerned with the facts anyway...
I can confirm that the puts were 'vanilla' puts as it was addressed at the May meeting. Someone, I think an analyst, asked a question about the index puts and WB responded that they were 'vanilla' puts that cannot be exercised prior to expiration. I am para-phrasing here, but I remember the term 'vanilla' gave me a chuckle. I asked the analyst who posed the question what was meant by vanilla and he referred me to the cboe educational site. I did not find any reference to vanilla on the cboe website so I asked some friends. They told me that the options are the same as what is traded at the major US exchanges, but cannot be exercised before the expiration date. I don't understand all the uproar about an obligation that won't be realized for up to 20 years. I am a long-time BRK shareholder. QUOTE]Quote from Trader666: I've read that these are non-standard puts and challenge anyone to post an authoritative link showing the pertinent details of ALL contracts which, as of time of the annual letter, expire between 2019 and 2028. Does anyone even have a credible breakdown of Berkshire's exposure to each of the four indexes? Without the necessary specifics, one simply can't draw the conclusions one needs those details to calculate. Duh!!!, That $delta was obviously wrong but the newly revised number, although now plausible, is almost certainly wrong too... but I can't say exactly how wrong because I don't have all the inputs and I doubt anyone else does outside Berkshire. One conclusion that can be drawn is that it's the height of ignorance, arrogance and stupidity to speak of the world's most successful investor as if he just fell off of a turnip truck -- especially without all the facts. But the kind of people who do that aren't concerned with the facts anyway... [/QUOTE]
Welcome to ET I find it interesting that your first post with your brand new nic is to "confirm" that the puts are "vanilla" based on what you claim you heard at the shareholders' meeting. If you're really a shareholder, why aren't you taking issue with atticus' statement that maybe "Buffett is playing fast and loose with the marks" or this http://www.elitetrader.com/vb/showthread.php?s=&postid=2516868#post2516868 or some of the other outrageous things he's posted here? Anyway... obviously the puts are close enough to garden-variety exchange traded puts for Buffett to have used "Black-Scholes valuation methods." However, my understanding of that point in the article was something to the effect that, the contracts were done on Buffett's terms and the exact details will not be publicly disclosed, just like so many other details of the derivatives contracts... I'll post a link if I can find it.
P.S. Speaking of this, does anyone have a link to a credible source? Or is it just another faulty conclusion based on erroneous assumptions?
I found this forum and thread when I googled Doug Kass and Warren Buffett. I've owned 5 class A shares for many years and I work for a Canadian bank in NYC. I did not come here to flame anyone of get involved in an existing flame. I was a bit embarassed that I didn't understand the terminology, so I have been researching Warren's option deals. I can;t login to boards at work so it's atypical for me to post. I know nothing from options but witnessed the Q&A at the meeting so I thought it would possibly add some color to the discussion. I can't really comment on the controversy other than what I have already posted because I am simply too green in this area. I will say that I feel less confident about holding the shares and will probably do some covered calls to reduce my cost basis. Mostly from reading Doug Kass' comments on other boards and in the wires. I hope everyone has a profitable week.
Buffett's Berkshire: We goofed on derivative risks. http://www.reuters.com/article/americasRegulatoryNews/idUSN1322440720090813 NEW YORK, Aug 13 (Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N)(BRKb.N) underestimated the risks of falling stock prices to its billions of dollars of derivatives bets, yet still believes it is valuing the contracts fairly. Berkshire revealed its error in a June 26 letter to the U.S. Securities and Exchange Commission, one of several pieces of correspondence with the regulator about the company's annual report, and made public on Thursday. It also agreed to SEC demands for more explanation on $1.8 billion of writedowns on stock investments, and $2.7 billion of auction-rate and other municipal debt holdings. On June 29, the SEC said it completed its review without further comment. The correspondence shows Omaha, Nebraska-based Berkshire, which has close to 80 businesses and ended June with more than $136 billion of stocks, bonds and cash, is struggling to comply with SEC requirements to disclose enough about its finances. This issue had surfaced in June 2008, when the regulator demanded "a more robust disclosure" of how the insurance and investment company values its derivatives. Buffett did provide some additional disclosure, in what he called "excruciating detail," in his annual shareholder letter in February. Berkshire, through Buffett's assistant Carrie Kizer, had no immediate comment. The derivatives contracts are tied to four equity indexes in the United States, Europe and Japan, and are a big reason Berkshire's earnings fell for six straight quarters. That string ended in the April-to-June period as stocks rebounded. In the June 26 letter, Berkshire's Chief Financial Officer Marc Hamburg told the SEC that last year's 30 percent to 45 percent declines in the equity indexes "are in excess of our volatility inputs." He nevertheless said Berkshire's expectations for stock market volatility are "reasonable" given the long-term nature of the contracts, which expire between 2018 and 2028. BULLSHIT Berkshire ended June with $8.23 billion of paper losses and $37.48 billion of potential liabilities on the contracts. Buffett expects the contracts to be profitable and can invest upfront premiums as he wishes. This is one reason the world's second-richest person believes the contracts are unlike derivatives that are "financial weapons of mass destruction." The $1.8 billion of "other-than-temporary impair losses" in 2008 related mainly to 12 equity securities that "generally" lost 40 percent to 90 percent of what Berkshire had paid for them, Hamburg wrote on May 22. Berkshire did not write down six other securities that fell 20 percent to 40 percent, he said. Hamburg also wrote that Berkshire had reduced its stake in auction-rate and similar municipal debt to $2.7 billion at year end from $6.5 billion six months earlier, but that the credit crisis slowed the runoff in the fourth quarter. The auction-rate market seized up in February 2008 and has not recovered. Berkshire has said it does not plan to sell its auction-rate holdings at below face value and can hold them until they are auctioned off or redeemed.
http://www.bloomberg.com/apps/news?pid=20601087&sid=atzD_PE8k9Lc "Berkshire told the Securities and Exchange Commission that it wrote down stocks when âthere was considerable uncertainty in the business prospectsâ of companies. Berkshire didnât write down equities when âin managementâs judgment the future earnings potential and underlying business economics of these companies were favorable,â according to a May 22 letter from Chief Financial Officer Marc Hamburg to the SEC. " This must be some kind of joke, are they actually not marking some of their stocks to the liquid traded priced but to management at Berkshire?I didnt even knew this king of gaming was allowed. Amazing