Stock_Options_3 - Rebutting Stock Option Defenders...

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Rebutting Stock Option Defenders  By Whitney Tilson 04/17/2002  I had intended to stop writing about stock options after critiquing them in my last  two     columns     , but I feel compelled  to rebut the self-serving, nonsensical arguments put forward by defenders of the status quo. In particular, I take  issue with two recent op-ed articles published in  The Wall Street Journal  (" Stock Options Keep the Economy   Afloat " (subscription required) by economists Burton Malkiel and William Baumol) and  The New York Times  (" Leave Options Alone " by venture capitalist John Doerr and FedEx CEO Frederick Smith).  Warren Buffett shredded all of the arguments put forward by these gentlemen in a brilliant op-ed of his own, " Stock   Options and Common Sense ," in last week's  Washington Post , but I'd like to add my two cents. Let's go through  the arguments one by one.  Difficult to measure the cost of stock options  The most common argument against expensing stock options is that their cost is impossible to measure with  precision. Doerr and Smith argued "that there exists no remotely accurate way to calculate the expense," while  Malkiel and Baumol agreed that "it is virtually impossible to put a precise estimate on [an] option's value."  In his piece, Buffett countered: "That is nonsense: I've bought and sold options for 40 years and know their pricing  to be highly sophisticated. It's far more problematic to calculate the useful life of machinery, a difficulty that makes  the annual depreciation charge merely a guess. No one, however, argues that this imprecision does away with a 
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This note was uploaded on 04/20/2011 for the course ACC 101 taught by Professor Xyz during the Spring '11 term at Ohio State.

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Stock_Options_3 - Rebutting Stock Option Defenders...

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