Will Berkshire Stocks Split? (2024)

Will Berkshire Stocks Split?Omaha doesn't have many claims to fame, but one resident is well known in the financial world. It isWarren Buffett, the “Oracle of Omaha,” who has proven his genius in picking investments time and time again. Buffett oversees the massive holding company Berkshire Hathaway, which he took over in 1965.

belowBuffett's management, Berkshire Hathaway (BRK.B) has returned an average of 20.5 percent annually – much more than the S&P 500.

To put that number in perspective, those who invested $1,000 in Berkshire Hathaway stock in 1965 would have more than $27 million today. The same $1,000 invested inwould be worth "only" $200,000 today.

Granted, 2020 wasn't a good year for Berkshire Hathaway, but investors are more than willing to excuse a misstep given the extraordinary events of 2020. No one doubts that Berkshire Hathaway will return to strong returns in the near future.

A single share of Berkshire Hathaway Class A stock today is priced in the hundreds of thousands of dollars. According to Buffett, the price is actually low and he has been buying back shares at what he considers bargain prices.

However, these stock prices feel high to many investors – especially Class A – and many are asking the same question: Will Berkshire stock split?

Why do companies split shares?

There are a number of reasons why companies choose to split their shares. One of the biggest is that very high prices make it difficult for traders to move 100 shares on a standard basis. (To sell options contracts as part of covered call strategies, for example, shareholders typically must own at least 100 shares).

Other benefits include greater stock liquidity, which increases trading volume – and which tends to close some of the bid-ask spread.

Companies that have an interest in repurchasing outstanding shares are primarily concerned about narrowing the bid-ask spread.

A large spread means a greater chance of stock prices moving in the wrong direction between the time a market order is placed and the time it is executed.

Is a stock split good or bad?

In theory, a stock split is neither good nor bad.Shares are split and current investors own the same share value before and after the split.For example, if a $90 stock is split 3-for-1, shareholders would own three shares worth $30 after the split.

But in the real world, stock splits tend to create more interest in the underlying company. Finally,when a stock is priced so high that a split is deemed necessary, investors are optimistic about the company's future prospects.

to takeTesla (TSLA)as an example of a company that split its shares 5:1 and then rose to pre-split rates within the same year.

As a result, it is common for stock prices to rise after a split. Researchers have noted that stocks that have been split increased by an average of seven percent in the first year after the split and by an average of 12 percent within three years after the split.

How often are shares split?

There is no specific pattern or rhythm to stock splits, and some analysts have noted that splits are less common today than they were in the 1980s and 1990s.

There are a number of reasons for this decline, but one of the biggest is believed to be the rise of Exchange Traded Funds (ETFs). ETF shareholders gain access to high-quality assets through low-cost ETF shares, eliminating the need to hold individual stocks at a low cost.

The sale of fractional shares has also contributed to the ability of retail investors to buy expensive stocks. Some of the most popular self-directed online brokers, known as robo-advisors, allow investors to buy stocks based on the dollars they have available rather than the price of the stock.

This may prevent some companies from splitting their shares and lowering the price per share. share, because there are fewer benefits and more risks. Lower stock prices generally increase the likelihood that day traders will be interested, and more day trading comes with greater volatility.

Will Berkshire Stocks Split?

One of the biggest differences betweenBerkshire Hathaways klasse Aand Class B shares are that Class A shares will not – ever – split, according to Buffett.

His theory is that allowing ahigh stock prices bring like-minded investors to the table, because those willing to buy at such prices are less likely to worry about small market fluctuations.

They are not the type of investors who focus on buying low and selling high in a short period of time. Instead, Class A shareholders are usually those who want to buy and hold a basket of valuable assets that will produce profits over the long term.

B shares, on the other hand, have split before and will likely split again one day. Buffett launched the Class B option in 1996 with the express purpose of making Berkshire Hathaway affordable to smaller investors.

At the time,the company offered only one class of stock, worth about $30,000 each, and too many ordinary people were left out by Berkshire Hathaway's success.

That year, Buffett chose to issue 517,500 B shares at 1/30 the price of A shares. Voting rights and equity were also proportionally lower, but this is a fair trade-off for those who couldn't buy into the Class A rate.

How many times has Berkshire Hathaway broken up?

If you consider the creation of Class B shares as a split, then this was the first stock split in the history of Berkshire Hathaway under Warren Buffett. However, most investors would say that Berkshire Hathaway Class B stock has only been split once: in 2010.

That year, Buffett had decided to take over Burlington Northern Railroad, and he needed a large amount of small Berkshire stock to pay Burlington Northern Railroad shareholders. The Class B shares were split 50 to 1, dropping prices to just $68 each.

In addition to making the purchase of the railroad possible, this split also benefited Berkshire Hathaway in another way. The company was admitted to the prestigious S&P 500 market index, which was a victory for everyone involved.As soon as ratings agency Standard & Poor's announced the move, Berkshire Hathaway's Class B shares rose 7.9 percent.

It's unlikely that A shares will be split anytime soon, but the purpose of B shares is to ensure that Berkshire Hathaway shares are affordable for anyone who wants to invest. While a stock split does not appear necessary for Class B shares at this time, a future split is certainly possible.

The author has no position in any of the stocks mentioned. Financhill has onedisclosure policy. This post may contain affiliate links or links from our sponsors.