January 19, 2010
By jc09058’s CAPS
For the last month, I have been sitting here and waiting for the results of the special shareholder vote on the Class B 50 to 1 split. While doing this, I’ve been reading and number of articles over the last week on the possible results from the split. A common thread in a number of these articles has been how trading activity for the Class B shares will increase because of the share price drop, and the possible inclusion of BRK into the S&P 500 list.
While I can’t say whether or not BRK will be included into the S&P 500 list, those folks have their own metrics for that decision, I would certainly find that to be a rather interesting turn of events. While I can’t say what Mr. Buffett and Mr. Munger would say to that, it would make for some interest effects on share prices in the short-term and who knows where the share price will settle in the long-term.
Now, concerning Class B share prices, typically, I have found Class B shares stay at or below the 30:1 share price cap that was set up by the Berkshire Hathaway when the Class B shares were created. Plus, the Class A shares typically drove the Class B share prices on it’s upward movements. Now, these articles elude to how the increase in the Class B shares needed for the Burlington Northern takeover may reverse the trend in the control, by the Class A shares, because of day traders and the lower share price in the Class B shares will allow more trading volume by the average investor.
I find that to be a little difficult to believe when you consider other limitations built into the Class B shares. 1) you can’t buy into the Class A shares from the Class B shares, 2) the maximum price cap for the Class B shares should change from 30:1 to 1500:1 against the Class A share price, and 3) the voting rights available currently require 200:1 ratio of the Class B shares to get a single Class A vote should change to 10,000:1 after the split. Taking these items into account, I find it difficult that any investor or group of investors would find the Class B shares to be any more attractive than it was prior to the split.
Granted, inclusion of Berkshire Hathaway in the S&P 500, will change the share prices a lot due to the mandate that S&P 500 index fund HAVE to buy those shares and that would drive their share prices up for the Class B shares. I can’t even imagine what would happen to the Class A share prices in this scenario due to the scarcity in it’s trading volume and how much is held by Mr. Buffet alone. Could it be possible that he might become the first Trillionaire if that happened?
While those individuals think that this is a fairly likely outcome for the future, I’m not sure. They belief that the Class B share price will start driving the Class A share price is the only way that could happen. However, I am sure that Mr. Buffett and Mr. Munger have taken that into account in their desire to maintain their control over Berkshire Hathaway and their plans for it’s future growth.
Basically, I bought into Berkshire Hathaway because of it’s past and it’s present operations, and due to Mr. Buffett and Mr. Munger plans for the company’s future. That is why I will remain with them as well, rather than on the possible what-if’s. Any investor wishing to do the same should make that their primary and only consideration for Berkshire Hathaway now or after the split in the Class B share.
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