5 ms·

Why doesn't Berkshire do stock splits to make the stock easier for retail investors to buy?

ska 5y ago
Counterpoint - why would they? I mean this seriously, is there a benefit to the company to do this? It requires at least a little work on their part to do, why fix what isn't broke?
- Someone1234 5y ago
  BRK is an unusual case where they offer both A and B, wherein B is retail-accessible. BRK.A mostly exists for bragging rights at the shareholder meetings / getting closer to a celebrity a lot of people deify. For other businesses, stock splits can increase investment/price since it makes that stock more accessible to retail investors and more importantly their huge pile of retirement savings. For example automatic investment plans that can buy whole shares of a company each month (via salary redirected savings) are much more popular than sitting on cash for up to months to buy a single share (and that is harder to automate/brokers don't support it). Fractional Shares should solve this issue, but many 401Ks simply don't support them, different brokers have a patchwork of what can/cannot be done with fractional shares (e.g. market orders only), and there's also questions about voting power/stock splits/broker transfers/legal rights/etc. If fractional shares were offered not at the broker level but at the exchange level with identical [proportional] power/legal rights/access/etc to regular shares none of this would matter, but they don't at all. So we've got a system where share price is both meaningless mathematically but also somehow an impediment to an entire investment class.
  - ska 5y ago
    Right, my point was poorly articulated. I know why most companies split, I'm just not sure what incentives BRK to do this now. Do you think their cap is negatively effected by lack of retail access? They are a weird case.
  - smabie 5y ago
    BRK.B gets you a ticket too
quickthrowman 5y ago
They issued a 2nd class of share, BRK.B, which is around $280/share right now and equates to 1/1500th of an BRK.A share. Berkshire A shares are convertible to B shares, but the converse isn’t possible.
- exporectomy 5y ago
  How can it not be possible? Surely if you have 1500 B shares, you can sell them and buy an A share?
  - quickthrowman 5y ago
    Yes, but Berkshire’s stock transfer agent won’t handle the conversion from B to A. You sell them on the market and are taxed accordingly. Their stock transfer agent will give you B shares in exchange for an A share, which is not a taxable event. It’s a mechanism to encourage arbitrageurs to keep the prices of the share classes in lockstep. https://www.berkshirehathaway.com/brkshareholderinfo/compab.pdf https://www.berkshirehathaway.com/brkshareholderinfo/compab....
    - ahelwer 5y ago
      Wouldn't going from B to A count as a wash sale?
      - calvinlh 5y ago
        Yes, but that only stops you from claiming capital loss, you still pay taxes on gains
pg_bot 5y ago
Berkshire has two classes of stock A and B. B is targeted towards retail investors (trading ~$280.50 per share ATM). They don't want to split A shares because they believe that the high price attracts like minded investors focused on long term profits.
- deleted 5y ago
  [deleted]
PeterisP 5y ago
IIRC this is intentional, I seem to recall Buffet responding to this question that he intends Berkshire to be a "hold long" stock, so for that purpose it makes sense to have the retail investors pushed to class B shares (equivalent but with less voting rights, and stock splits have been done for class B shares) so that the voting shareholders are predominantly larger investors who generally have a longer term perspective than retail.
- salawat 5y ago
  What the hell is the point of shares without voting rights? At that point all it is sans regular dividends is a speculation vehicle, which Buffett has long been against... What am I missing?
  - jws 5y ago
    You can ride the coattails of people smarter than you?
  - xboxnolifes 5y ago
    less voting power, not none.
    - ipaddr 5y ago
      No voting rights. Decisions on who runs things you have no vote.
  - jrumbut 5y ago
    I've always felt this was a weak point for him. He goes over what he thinks makes a good investment for a normal person and why he thinks Berkshire is one of them a lot but glosses over this point any time I've heard him talk about it. I think the idea is that he doesn't want to return cash while there are still good investments and made the B shares available for those who need liquidity.
  - sinsterizme 5y ago
    Warren wouldn't characterize a long-term investment as speculating, even with no dividends and no voting rights. Speculation is when you buy something for its short-term price movements, whereas investing is buying a share of ownership in a company based on the intrinsic cash-generating ability of the company. Even with no dividends the profits don't vanish in thin air, they can get re-invested or improve price through share buy-backs
partiallypro 5y ago
You can buy slices of stock now, so splitting is almost pointless.

ska 5y ago

Counterpoint - why would they? I mean this seriously, is there a benefit to the company to do this? It requires at least a little work on their part to do, why fix what isn't broke?

Someone1234 5y ago
BRK is an unusual case where they offer both A and B, wherein B is retail-accessible. BRK.A mostly exists for bragging rights at the shareholder meetings / getting closer to a celebrity a lot of people deify. For other businesses, stock splits can increase investment/price since it makes that stock more accessible to retail investors and more importantly their huge pile of retirement savings. For example automatic investment plans that can buy whole shares of a company each month (via salary redirected savings) are much more popular than sitting on cash for up to months to buy a single share (and that is harder to automate/brokers don't support it). Fractional Shares should solve this issue, but many 401Ks simply don't support them, different brokers have a patchwork of what can/cannot be done with fractional shares (e.g. market orders only), and there's also questions about voting power/stock splits/broker transfers/legal rights/etc. If fractional shares were offered not at the broker level but at the exchange level with identical [proportional] power/legal rights/access/etc to regular shares none of this would matter, but they don't at all. So we've got a system where share price is both meaningless mathematically but also somehow an impediment to an entire investment class.
- ska 5y ago
  Right, my point was poorly articulated. I know why most companies split, I'm just not sure what incentives BRK to do this now. Do you think their cap is negatively effected by lack of retail access? They are a weird case.
- smabie 5y ago
  BRK.B gets you a ticket too

quickthrowman 5y ago

They issued a 2nd class of share, BRK.B, which is around $280/share right now and equates to 1/1500th of an BRK.A share. Berkshire A shares are convertible to B shares, but the converse isn’t possible.

exporectomy 5y ago
How can it not be possible? Surely if you have 1500 B shares, you can sell them and buy an A share?
- quickthrowman 5y ago
  Yes, but Berkshire’s stock transfer agent won’t handle the conversion from B to A. You sell them on the market and are taxed accordingly. Their stock transfer agent will give you B shares in exchange for an A share, which is not a taxable event. It’s a mechanism to encourage arbitrageurs to keep the prices of the share classes in lockstep. https://www.berkshirehathaway.com/brkshareholderinfo/compab.pdf https://www.berkshirehathaway.com/brkshareholderinfo/compab....
  - ahelwer 5y ago
    Wouldn't going from B to A count as a wash sale?
    - calvinlh 5y ago
      Yes, but that only stops you from claiming capital loss, you still pay taxes on gains

pg_bot 5y ago

Berkshire has two classes of stock A and B. B is targeted towards retail investors (trading ~$280.50 per share ATM). They don't want to split A shares because they believe that the high price attracts like minded investors focused on long term profits.

deleted 5y ago
[deleted]

PeterisP 5y ago

IIRC this is intentional, I seem to recall Buffet responding to this question that he intends Berkshire to be a "hold long" stock, so for that purpose it makes sense to have the retail investors pushed to class B shares (equivalent but with less voting rights, and stock splits have been done for class B shares) so that the voting shareholders are predominantly larger investors who generally have a longer term perspective than retail.

salawat 5y ago
What the hell is the point of shares without voting rights? At that point all it is sans regular dividends is a speculation vehicle, which Buffett has long been against... What am I missing?
- jws 5y ago
  You can ride the coattails of people smarter than you?
- xboxnolifes 5y ago
  less voting power, not none.
  - ipaddr 5y ago
    No voting rights. Decisions on who runs things you have no vote.
- jrumbut 5y ago
  I've always felt this was a weak point for him. He goes over what he thinks makes a good investment for a normal person and why he thinks Berkshire is one of them a lot but glosses over this point any time I've heard him talk about it. I think the idea is that he doesn't want to return cash while there are still good investments and made the B shares available for those who need liquidity.
- sinsterizme 5y ago
  Warren wouldn't characterize a long-term investment as speculating, even with no dividends and no voting rights. Speculation is when you buy something for its short-term price movements, whereas investing is buying a share of ownership in a company based on the intrinsic cash-generating ability of the company. Even with no dividends the profits don't vanish in thin air, they can get re-invested or improve price through share buy-backs

partiallypro 5y ago

You can buy slices of stock now, so splitting is almost pointless.