Warren Buffett recently announced that the Class B shares of Berkshire Hathaway are going through a 50 to 1 stock split, which is the first time he has split Berkshire stock – something he has claimed for years he wouldn’t do. Buffett has stated multiple times that he prefers not to split stocks because the higher prices make it less likely that day traders will cause major price fluctuations. He changed his mind this week though, after Berkshire’s acquisition railroad company Burlington Northern Santa Fe for a mix of cash and stock. Splitting the stock was a byproduct of the deal and was done for tax reasons.
What is a stock split?
A stock split is just what it sounds like – the stock is split into multiple parts. It actually doesn’t change the overall value of the stock, just the number of shares. For example, if you have a $100 stock and the company does a 2 to 1 stock split, then the original share is now two shares valued at $50 each, which still equals $100. But in the case of the BRK.B stock, it is a $3,425 stock (Friday’s closing price) being split into 50 shares, valued at $68.50 each. (As an interesting note, the Class A share of Berkshire trades for over $100,000).
This shouldn’t change the overall value of the shares, but it will make it much easier for the average investor to purchase shares of the Berkshire B stock, as not everyone can come up with $3,400 to purchase one share. But when the stock splits on Tuesday, people will be able to pick up shares for less than $100, which makes it easier for the average investor to purchase shares.*
*Partial share investing. Some online brokers, including ShareBuilder and a few others, offer investors the opportunity to purchase partial shares of stock, so in the case of BRKB, one could have already been making purchases of partial shares before the stock split. However, not all brokerages offer this.
Recommended financial and career articles:
- Flipping a coin to divide a billion dollar empire. Not all business deals involve teams of lawyers and years to accomplish.
- Never Call In Sick On Friday, Slacker!. An interesting take on a common problem. Be sure to read the comments.
- My Store-Brand vs. Name-Brand Blind Taste-Test Experiment. Great article. My wife and I purchase a mix of name brand and generic products depending on the item, taste, value, etc.
- Be Your Own Part-Time Boss: The Pros & Cons. Great article for entrepreneurs.
- Great News! I Just “Fired” Myself! (Who’s Next?). Another great article for entrepreneurs. It is important to know when to outsource business tasks.
- Your Estate Planning Checklist. Essential reading.
- When Money Doesn’t Matter. You cannot place a price on life, and this article is an very good read about doing what it takes to save a life.
- Living Paycheck to Paycheck Could Cost you Your Life.
- Blockbuster employee stabs himself to avoid getting fired. Desperation as unemployment hits 10%.
This week’s carnivals:
- The Best of the Best in Money and Personal Finance #8 @ LenPenzo.com.
- Carnival of Debt Reduction @ Mighty Bargain Hunter.
- Carnival of Personal Finance #229: candy edition @ the centsible life.
- The Best of Money Carnival #23 @ Provident Planning.
- Carnival of Money Stories @ Christian Personal Finance.
- Carnival of Money Hackers #89 – My Favourite Coffee Edition @ The Financial Blogger.
- Financial Planning and Personal Investment Articles this Week @ The Skilled Investor.