If you always wanted to invest alongside Warren Buffett, but found it too expensive, you now have your chance.
Buffett's decision to conduct a 50-for-1 split of Class B shares of his Berkshire Hathaway Inc lowers the price of entry for ordinary investors who long found it prohibitively costly to buy the stock.
The split is one piece of Berkshire's $26 billion takeover of Burlington Northern Santa Fe Corp, and is intended to make it easier for shareholders of the railroad who want to swap their shares for Berkshire stock to do so.
Berkshire Class B shares closed Monday at $3,265. After a 50-for-1 split, they would cost just $65.30. Class A shares of Berkshire trade around 30 times the price of the Class B shares, or around $100,000, and are not being split. The split requires approval of Berkshire shareholders.
"I do think it will attract more investors," said Justin Fuller, author of the Buffettologist.com blog.
Buffett, 79, had never split Berkshire stock. The world's second-richest person reasoned that splits could attract speculators rather than the long-term investors he prefers for his Omaha, Nebraska-based insurance and investment company.
In a shareholder letter in March 1984, when Berkshire Class A shares traded around $1,300 and 12 years before the B shares were created, Buffett said a split would "attract an entering class of buyers inferior to the exiting class of sellers."
His tune has changed little. "I'm not big on stock splits," Buffett told CNBC television on Tuesday. He said Tuesday's split, however, will let small Burlington shareholders as well as larger ones participate in a tax-free stock swap.
The price of Berkshire Class B shares is roughly six times that of Google Inc, the highest-priced stock in the Standard & Poor's 500 stock index. Berkshire is the largest U.S.-based company by market value not in the index.
Buffett believes stock splits result in "no intrinsic increase in the value of anything," said Frank Betz, a principal at Carret/Zane Capital Management LLP in Warren, New Jersey. "But the market belies that."
NO RIFF-RAFF
Berkshire created Class B shares in 1996 to thwart unit trusts "purporting to be low-priced 'clones' of Berkshire" by chopping up the Class A shares in pieces to be sold, Buffett said in his shareholder letter that year.
"Charlie and I do not care whether our shareholders own Berkshire in large or small amounts," Buffett wrote, referring to Berkshire Vice Chairman Charlie Munger.
"What we wish for are shareholders of any size who are knowledgeable about our operations, share our objectives and long-term perspective, and are aware of our limitations, most particularly those imposed by our large capital base," he added.
One question posed by the stock split is the future of Berkshire's annual shareholder gathering, which Buffett calls "Woodstock for Capitalists," usually the first weekend in May.
To gain admission, you must own Berkshire stock. Family members can also attend.
Attendance grew rapidly after the B shares were created, and 35,000 people showed up this year. A stock split could entitle hundreds of thousands more people to attend.
The weekend already causes downtown Omaha hotels to sell out a year in advance, and is the city's biggest annual event other than the College World Series.
Buffett's assistant Carrie Kizer declined immediate comment. The Greater Omaha Chamber of Commerce did not immediately return a request for comment.
Fuller noted that liquidity in Berkshire stock may also increase as Buffett donates the bulk of his net worth, in the form of Berkshire stock, to charities including the Bill & Melinda Gates Foundation. He began that process in 2006.
"At some point it may be included in the S&P 500," Fuller said. "(That) would be great for shareholders, as funds would have to buy it. That's not going to happen today, but it could happen in five or 10 years."