By Andrew Frye
Jan. 26 (Bloomberg) — Berkshire Hathaway Inc., Warren Buffett’s insurance and investment company, surged in extended trading after being picked to join the Standard & Poor’s 500 Index.
Berkshire Class B stock jumped $6.15, or 9 percent, to $74.15 at 6:26 p.m. in New York. The Omaha, Nebraska-based firm will replace Burlington Northern Santa Fe Corp. after completing the acquisition of the railroad, S&P said today in a statement.
Buffett split the stock 50-for-1 last week as part of the $26 billion railroad purchase. The move brought Berkshire’s stock price below $75, making shares available to a larger group of investors and increasing the trading volume. Buffett told investors at a Jan. 20 meeting that inclusion in the S&P 500 may prompt index-tracking fund managers to buy as much as 7 percent of Berkshire.
“There’s obviously going to be quite a bit of buying,” said Michael Quigley, a fund manager at Wedgewood Partners, which oversees $550 million in St. Louis. “There should be a steady bid over the next few weeks as indexers square their positions.”
Funds that track the S&P 500 have about $1 trillion in assets, according to David Guarino, a spokesman for S&P in New York. The after-hours trading boosted the value of Buffett’s personal Berkshire stake, which includes Class A and Class B shares, by $3.17 billion. The firm has advanced 11 percent since the share split was approved on Jan. 20.
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Buffett, the 79-year-old Berkshire chairman and chief executive officer, is welcoming a broader base of investors to the firm he built in the past four decades. Traders and equity analysts have long paid Berkshire less attention than other companies of similar size because of its elevated share price and relatively stable investor base, led by Buffett, who owns roughly a quarter of the stock. Berkshire’s Class B traded as high as $3,340 the day before the split took effect.
“I can’t imagine another stock that’s more deserving of being in the S&P,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors, which holds Berkshire shares. “It will naturally have higher demand from the index funds.”
Buffett says his ideal investment horizon is “forever.” Berkshire is the biggest shareholder of Coca-Cola Co. and American Express Co., and Buffett has held those stocks for more than two decades even as both trade below their top prices in the 1990s. He’s recorded multibillion dollar gains for Berkshire on investments in Capital Cities/ABC Inc. and PetroChina Inc.
Index funds may give Berkshire shares stability, Buffett told shareholders last week.
“You’ve got a permanent stockholder for 6 or 7 percent of your shares,” Buffett said. “We like permanent shareholders. That’s exactly what we’re looking for.”
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