Add training workflow, datasets, and runbook

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Understanding and Managing Leverage 185
Berkshire Hathaway (BRK.A). In a recent academic paper written by re-
searchers at AQR Capital titled, “Buffetts Alpha, ”4 the researchers found
that a significant proportion of Buffetts legendary returns can be attributed
to finding firms that have low valuation risk and investing in them using a
leverage ratio of roughly 1.8. The leverage comes from the float from his in-
surance companies (the monies paid in premium by clients over and above
that required to pay out claims). As individual investors, we do not have a
captive insurance company from which we can receive continual float, but
by buying options and using leverage prudently, it is possible to invest in a
manner similar to a master investor.
In this section, we have only discussed leverage considerations when
we gain exposure by buying options. There is a good reason to ignore the
case where we are accepting exposure by selling options that we will dis-
cuss when we talk about margining in Chapter 10. We now continue with
chapters on gaining, accepting, and mixing exposure. In these chapters, we
will use all of what we have learned about option pricing, valuation, and
leverage to discuss practical option investment strategies.