When Will Berkshire Hathaway Split Its Stock Again?
Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), the conglomerate led by billionaire investor Warren Buffett, is famous for a few reasons. One of the reasons is its astronomical stock price -- as I write this, Berkshire Hathaway's Class A shares are trading for more than $244,000 each. Berkshire has compromised a bit over the years on its anti-splitting mentality, so could another stock split be in the cards?
Berkshire Hathaway had a five-figure share price before it ever "split"
First of all, Berkshire Hathaway's stock has technically never been split. Rather, a new class of shares was created about 20 years ago. Up until that point, Berkshire's stock price had been high in comparison to the rest of the market, but many retail investors could at least afford to buy a share if they wanted. Think of Berkshire in the 1980s like buying Priceline (about $1,600 per share) today.
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In the mid 1990's, Berkshire Hathaway's stock price exceeded $30,000, and investing in the company became prohibitively expensive for many retail investors who wanted a piece of the Oracle of Omaha's company. In response, certain investment companies planned to buy full shares of Berkshire and sell fractional portions of these shares to retail investors.
Buffett was adamantly opposed to this, as he believed it would open the door for everyday investors to get taken advantage of, by companies not affiliated with Berkshire, who would use the Buffett name to charge high fees and commissions from unsophisticated investors.
The "baby Bs" are born
To nip the problem in the bud, Berkshire created its Class B shares in 1996, which immediately solved the problem of retail investor accessibility. Each share initially had 1/30th of the equity of an original, or Class A share, making their initial price in the $1,000 ballpark -- still expensive, but certainly much more affordable.
Buffett and company were careful to market the Class B shares as a long-term investment, and made the offering open-ended to prevent supply caused volatility. In addition, Class A shares were convertible to Class B shares at any time, but not the other way around, as the Class B shares do not carry the same voting rights.
Then, in 2010, Berkshire split the Class B shares 50-for-one, when Berkshire stock was used to help fund the acquisition of BNSF Railroad. So, as I write this, Berkshire Hathaway's Class B shares have 1/1,500th the equity of the Class A shares, and trade for just over $160.
So, when will Berkshire Hathaway split its stock again?
I generally don't like to use the word "never" when it comes to investing, but if we're talking about Berkshire Hathaway's Class A shares, I simply don't foresee them being split. It's entirely possible that the company will decide to split them at some point, but let's call it highly unlikely.
When it comes to the Class B shares that most of Berkshire's investors own, it's another matter. I don't think they will be split again anytime soon, simply because the issuance of the Class B shares and the 2010 split have achieved the objective of making a direct investment in Berkshire Hathaway accessible to ordinary investors like you and me.
Perhaps someday when the Class B shares have appreciated significantly in value, Berkshire's management team will decide that another split is in order. However, I wouldn't count on another split happening anytime soon.
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Matthew Frankel owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.