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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (79417)	6/15/2002 1:54:32 PM
From: brightness00	Respond to of 99280

IMHO, the math you illustrated shows that with the current accounting method, investors are effectively paying a higher multiple for the same "real value" (whatever that means) the company creates. It's a little like Price/Earning ratio vs. Price/CashFlow ratio valuation model for stocks. So long as the next guy in line accepts Price/CashFlow method, you are fine. Your math also shows however there is little chance for reform, because the government gets a significant cut out of the current system: more taxable income.

To: mishedlo who wrote (79417)	6/15/2002 2:39:04 PM
From: Mark L.	Read Replies (2) \| Respond to 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.