The B shares of Berkshire Hathaway Inc. have had a nice run since a 50-for-1 stock split reduced their price from the US$3,500-a-share neighborhood to the far more affordable level of around US$70 a share. While there are many good reasons for the stock’s increase, don’t discount the impact of dollar illusion.
Quite simply, a stock that’s going for the price of a couple of nice bottles of wine sounds like a much better deal than one that costs as much as a vacation. The value on a dollar-for-dollar basis is exactly the same, of course—but bringing the stock price under $100 makes it seem like nearly an impulse buy.
The question now is whether other companies might take a page from Warren Buffett’s book and do their own stock splits. One candidate would be Fairfax Financial Holdings Ltd. of Toronto. Its shares are trading around $370 apiece. Splitting them, say, five for one would bring them down to around $75 each.
Apple Inc. would be another candidate. It’s selling for US$200 a share. Jeffrey Miller, a money manager with NewArc Investments Inc., believes Apple deserves a much higher share price. He thinks that investors are balking at paying more because of the number of dollars involved. He suggests splitting the stock, perhaps 10 for 1. “If this were a $20 stock, it would soon be a $30 stock,” he declares.
Freelance business journalist Ian McGugan blogs for the Financial Post.