Black Quote by Charlie Munger
“Black-Scholes is a know-nothing system. If you know nothing about value - only price - then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it's crazy to get into Black-Scholes. For example, at Costco we issued stock options with strike prices of $30 and $60, and Black-Scholes valued the $60 ones higher. This is insane.”
About This Quote
Source Speech: Berkshire Hathaway Annual Meeting, 2012
Black‑Scholes works for short‑term options but becomes unreliable for longer horizons, especially when assumptions break down.
In simple terms: Short‑term pricing works; long‑term is risky.
Key Takeaway
Use Black‑Scholes cautiously for long terms.
Themes
finance
valuation
risk
Mood
cautious
analytical
Type
advice
critical
When to use this quote
- stock option grants
- financial planning
- investment analysis
Key Concepts
option pricing
model risk
Questions to Reflect On
- When should alternative models be used?
- How to adjust for long‑term uncertainty?
A Different Perspective
Model assumptions may not hold in volatile markets.
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