Quantifying a WAG

Today several investment banks announced their share of Level 3 assets. In case you are wondering what level 3 assets are--and level 1 and 2 assets for that matter--the Wall St. Journal has this definition:

Level 1 is assets that have observable market prices. Think a stock traded on the NYSE.

Level 2 assets don’t have an observable price, but they have inputs that are based on them. Think an interest-rate swap where its components are observable data points like the price of a 10-year Treasury bond.

Level 3 is for assets where one or more of those inputs don’t have observable prices. This is the bucket that has been described as a guesstimate, because it is reliant on management estimates. As things stand now, companies who haven’t early adopted FAS 157 don’t give this more detailed breakdown to investors. So, one result of FAS 157 is more information.

Warren Buffet famously said that he never invests in things that he does not understand. I wonder how many