Part 3/8:
Buffett noted that the model relies heavily on historical volatility to gauge the value of options, which is not always reliable. He recounted experiences where options for stocks with lower volatility were priced less favorably compared to those with higher volatility, despite their intrinsic worth to informed investors. Munger criticized the reliance on mechanical systems, calling the Black-Scholes model a "know-nothing value system" that could mislead investors, particularly over longer time horizons.