Zeev's Turnips - No Politics Message Board

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Strategies & Market Trends : Zeev's Turnips - No Politics

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To: mishedlo who wrote (79417)	6/15/2002 2:39:04 PM
From: Mark L.	Read Replies (2) of 99280

Could you please provide a link as to where Buffett says options are bad? I think you'll find that he thinks options are a perfectly valid incentive, but he feels strongly that the ACCOUNTING for options must change. His view is that options are compensation; as such, they should show up on the income statement that way. He is especially irked by the specious argument that the value of options can't be accurately assessed, and thus accounting for them on the income statement would introduce an extra possibility of error. This argument is hypocritically advanced by people who routinely use options to hedge portfolios and thus are quite competent in assessing their price--they just don't want to take the hit on stock valuation. For whatever it's worth, Buffett does prefer cash (or loans to buy stock) to options as an incentive. Stock options insulate the holder from the downside risk of a stock price; thus, executives are incentivized to recklessly swing for the fences. Then, of course, there's the especially perverse practice of re-issuing replacement, lower-priced options to the executives whose actions caused the stock to fall in the first place.

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