RichardGibbons

The decay from volatility is built into the option prices. For instance, back in June, when UVXY was trading at about $70, I bought 2015 $70 strike puts at the ask for something like $47. Clearly they were priced to include the various forms of decay from which they suffer. Now that UVXY is at $20, they're trading for 52-56, though I sold them a while back, because, while I still think these will almost always be profitable, I've since decided that other short volatility ideas are better, and I didn't want too much exposure to short volatility.

Sorry, my mistake. You seemed to write 10 about messages about how Buffett hated artists, using phrases such as "Buffett's theory of artists being a waste of capital". So, I thought you were confused about what Buffett was actually saying and were seriously suggesting that Buffett hates artists. Because of the preponderance of dialog about the artists/capital allocation, I didn't realized that your caveat was your key point. Sorry for the misunderstanding.

This is a gross misinterpretation of what he meant. He meant that because he controls great amounts of wealth, he's capable of allocating resources in ways that are stupid and not beneficial to society. He could have said "Dig holes, then fill them in", as Orwell said in 1984, and it would have had the same meaning. He was not saying anything about the merit of art to society. It's typically a mistake to assume that Buffett is saying something idiotic, when a reasonable alternative explanation exists. (i.e. I agree that if he meant to imply that artists should become surgeons, it would be idiotic. But he didn't meant that.)

These are all fair replies. That said, there's no intrinsic reason why a doctor has to work harder than a teacher. Or have more education, or have licensing requirements that teachers don't have. We could demand high quality and get rid of the teachers who can't make the cut. We could demand the same of our teachers that we demand for our doctors, but we choose not to. I wouldn't pay teachers more for the same work, but would for improved quality. I think the main point is that Finland's figured out what works -- abolish private schools and pay teachers well. North America is choosing another path that results in a significantly worse education. This seems to be an endeavor where I think it makes sense to look at the evidence of what seems to be working and adopt best practices. Thus far, we're choosing not to do so, and over the long term, it will result in a competitive disadvantage.

Hmm, so then if you just close all the public schools, and restrict school funding to the government, you've solved the problem. (Well, and kill tenure and union BS.) So easy! 100K -- which I think is a stretch for a teacher -- isn't a high salary after 20 years. What does a doctor make after 20 years? What does a partner at a law firm make after 20 years? Heck, 15 years ago I was making about that a couple years after graduation. Of course, you probably don't think teachers are worth that much. That's kind of what I mean by "respect and pay well".

I think that there's some value in looking at the evidence in Finland. Buffett's basically right. Effectively eliminating private schools and making teaching a respected, well-paid profession seemed to work pretty well there. http://www.theatlantic.com/national/archive/2011/12/what-americans-keep-ignoring-about-finlands-school-success/250564/

Sorry, I don't know how to fix the quote above. Sanjeev, can you do it? (Or delete it.) The huge flaw is that you're completely excluding one of the most likely theory for how the universe works, and pretending that it doesn't exist because it doesn't match your theory. It's fine to do it, in that Newtonian physics still approximates the world. But it's a limited model that refutes other theories by assuming them away. (Sorry for the rushed response. I'm about to go on vacation for a week, and won't have access to the internet.)

OK, so an argument like, "Stock always go up (provided we exclude from the sample set any stock that goes down)", or "Newtonian gravity represents perfectly the way the universe works (assuming we ignore the big or the small)", or "All swans are white (assuming Australia doesn't exist)". Basically, your proposition is built on asserting that the universe doesn't have any properties that refute your proposition. So it's kind of an approximate model for the universe with huge known flaws rather than actually trying to represent the real universe. Ok, in that case your proposition is true, other than the time issues boiler raises. (You could just go all the way and say that the intrinsic value of every company is zero, since, at the heat death of the universe, all stocks and all distributed earnings of those stocks would be worthless. But I'm guessing that you wouldn't like either. I kind of like that one though, because it says that the intrinsic value of every company is fixed and knowable, which is kind of cool.)

There isn't one past. Suppose at this moment you flip a coin. One universe is created where the result is heads, and one is created where the result is tails. Do it again. Now you have 4 universes. There are some parts of the past that are in common, and some parts where the past is not in common. The problem with your argument is that you're saying that when you flip that coin and it comes up heads, that means that in your universe, it was always going to be heads. That's not true, because the alternative universe, where it came up tails, is also your universe and also contains the same you. Each Ericopoly in each universe could argue that the coin was always fated to come up heads/tails, but it doesn't make any sense to completely ignore the other universe which is also you, and where the opposite result occurred. It's still you.

Ericopoly and Birdman, you seem to be making the assumption that there will end up being only one outcome. Why are you discounting the possibility that a new universe is created for every outcome? In that case, all IV estimates are true, in one universe or another.

I'm not really bearish. I was very bullish, but arguments on this thread have turned me into a moderate bull. I thought its moat was very robust, nearly as strong as Google. But now I'm thinking its moat is actually weak, since, despite there being passionate bulls on this thread who claim to know a lot about the stock, there haven't been many persuasive arguments for it having a significant competitive advantage. So, I've mentally downgraded it from a strong moat to a weak moat. Nevertheless, I agree with you that it would be nuts to short it.

What are you suggesting here? A company that has released a successful product is above criticism from anyone who has not had a successful product?

This is the core problem -- obviousness is being grossly underestimated particularly when it comes to software. If you express a problem to 10 of developers, typically only a few solutions will arise. Yet it's typically easy to patent these solutions. It's very common for two people to come up with the same solution independently. That's why the system is broken. That said, I wouldn't expect someone who makes his living from this attribute to buy into this argument, but rather say that almost everything is non-obvious.

The thing that annoys me about this is that Google has created a 3rd party API, but for now is only allowing 3rd party developers to create free apps without advertisements. That seems very short-sighted to me.

I think it's an interesting email. Definitely more perceptive than I was at the time. It wasn't nearly as clear to me that the iPhone was a game-changer. The other thing I find interesting is the areas where you were off a bit. For instance, the iPhone dominance only lasted a few years, and wasn't sustainable. Despite iPhone's success, only six years later, Samsung has the dominant phone and is the one pushing the boundaries today. The other interesting one is Apple TV, in that Apple's had this huge lead-time but is very likely to fall to Microsoft's next xBox release. It really goes to show that in tech, even when your prognostications are largely correct, it's extremely difficult to identify in advance something that will turn into a sustainable competitive advantage like that of Microsoft and Google.

It's not apples and oranges. That said, if you don't have evidence for that belief, but just believe it to be true, it's fine to say so. I was asking because I was curious. I see lots of covered call sellers saying so, but haven't seen evidence, and when I reason it out, it seems to not make sense. Boilermaker, I share your belief. The interesting question to me when thinking about it that way is whether it's more economic to sell the naked put, buy a call, or own the stock. Part of the challenge for me is that the more undervalued the stock, the more safety in selling the put, but also the more upside you miss out on if that put is never exercised and the stock quickly returns to fair value. In that case, the shares or long calls would be much more profitable. (e.g. most people were buying BAC calls or shares a year ago, and not selling calls).

What evidence do you have for that, twacowfca? That doesn't match my understanding, and can't really understand why that would be the case. e.g. my penny argument proves that there is a price where selling options is unprofitable, and everyone agrees that there is a price where selling options is profitable, and I don't think it's hard to show that there exists a price at which it is neither profitable nor unprofitable to sell options. Why would one expect option prices to diverge from that price? I've read a few books on options and played around with them for 20 years, but haven't really done them seriously. So if you have some actual evidence for that, it would be interesting to me.

Based on this, how about on a $50 stock, you sell me $50 leap calls for a penny, and $50 leap puts for a penny. I'll be willing to play this game indefinitely as long as the stock continues to trade, just so that you don't have to worry about me getting lucky and winning the first time, and not having another shot at it. In reality, the long term profit is determined by the future volatility. If you're always selling options at implied volatilities that end up being higher than their actual volatility, you'll win. If the implied volatility turns out to be less than the real volatility, you'll lose. That's why you're unwilling to sell me those options for a penny -- the implied volatility of the options I'm hoping you'll sell me is too low for them to be profitable to you over the long term.

I don't get it. What's the alternative to government being the final arbiter of what you can and can't consider to be yours? I think either society as a whole agrees on what ownership means (society = government) or you only own what you can protect from other people taking (which I think almost everyone would hate). Am I missing something? Or is it just the fantasy that if we abolish government, everyone will magically adhere to some moral code that includes a similar notion of what ownership means?

Yeah, let's take Easter Island as an example. http://en.wikipedia.org/wiki/Easter_Island#History A nice forested island. Humans come in and destroy the trees until it's a barren wasteland. As they're cutting down the last tree, they're probably saying, "Don't worry, our technology or god will save us." And in a way, they were right. That said, they're in an enclosed ecosystem. So, when they screw it up, they're stuck with what they've created. But they do figure out a way to survive. Cannibalism becomes an accepted practice and the population plunges by 80%. So yeah, we can destroy many of the things that we rely on on our survival on the earth, and it's very unlikely to destroy all humans. The question is, it is worth a small investment now to prevent the possibility of big problems later? Generally, humanity seems to decide not. I disagree, but that's largely because I think picking up nickles in front of steamrollers is a bad idea. I've always found this comic amusing: http://img.izismile.com/img/img4/20110621/640/hilarious_mother_nature_illustration_640_high_02.jpg

Yeah, the guy you're thinking of is Bill Clinton. http://www.businessinsider.com/how-clinton-surplus-became-a-6t-deficit-2013-1 Something similar also happened in Canada, where a Liberal government sustained a surplus for a decade, and the "Conservative" government eliminated it. All that said, I'm extremely surprised to hear that you're a Keynesian, Yankee.

It's also worthwhile noting that survivorship bias will impact these discussions, and the increased volatility of more concentrated portfolios means that survivorship bias will impact these portfolios more. So, of the people who were extremely concentrated, we probably will only hear from the ones who made piles in Fairfax and BAC, not the ones that blew themselves up three years ago and have never invested a penny in the market since.

I haven't read that much on Steve Jobs, but I think he would probably be a bad employee. :) Plus, I think he would have been wasted as my employee. That said, you make a good point that I won't identify all the good candidates. But for me, hiring people is more like Buffett's baseball game with no called strikes. It's much more important to me that I don't make a bad hiring decision than it is for me to ensure that it is to cast a really wide net to ensure that every high-potential person is caught (but at the cost of a huge number of mistakes). All that said, I also believe that the single most important factor that makes people like Jobs and Gates so successful is luck. In terms of your point about doing, I think that is important, but not as important to me as being capable of doing. Someone who's smart will be much more capable of doing than someone who isn't. Someone who isn't smart might spend a lot of time working, but get very little done because their approach is terribly inefficient. OK, I totally misunderstood what you were saying. This is an interesting question. "The greatest benefit" is also an interesting thing to define. I have a feeling that many people would focus on wealth per capita, but I feel a measure such as happiness per capita would be better. From my perspective, for which I have no evidence, is that you throw piles of resources at people to get them to their highest potential when they're basically ready to become productive, say at 20, then you let capitalism take over. So, level the playing field as much as possible at the start, but then let luck and ability work out who gets the most resources from then on.

I don't really understand what you are saying here, but I'll try to answer what I think is the question. The application to technical jobs is: If someone is unable to look at a problem and decompose it to attempt to identify a solution, they probably will not be very good at solving most technical challenges Most good tech people I've met like puzzles Thinking logically is pretty important for most technical jobs, and this question allows someone to show their logical thinking, or lack thereof I think the answer to this is probably testable if you're willing to define what you mean in a more formal way, by defining who is in each group and what it means to bet on them and what it means to win the bet. e.g. suppose you have $100, and you can either bet $1 on each one of 100 grade 7 students or $10 on the top 10 grade 7 students as selected by a standardized test, and you double your money if a student you bet on completes a degree. You could figure out very easily what is the right bet to make on average just by looking at degree completion data over a large sample size of population. So to me, this is entirely a problem definition question, and for most problem definitions, I suspect the answer is knowable. (Or maybe I'm misunderstanding what you're asking.)

I kind of feel like the school stuff is one of those things like universal healthcare and gun control where the US pro-freedom and pro-capitalism culture will mean that addressing the issues is politically impossible. Many of the answers are already known, but they won't get traction in the USA because they're culturally unpalatable.