At some point the price of A shares will reach a level that is either out of reach or inconvenient to the buy and hold shareholders that Berkshire hopes to attract. That leaves the purchases to institutional buyers whose votes on shareholder submitted proxy issues are less predictably pro management. At the same time, the number of outstanding A shares continues to shrink as longtime shareholders convert.
One possible way to retain the support of those A shareholders “who spent their own money” is to split the A shares so that it isn’t necessary to convert $500,000 worth of stock to raise $50,000 of living expenses. A five to one split would make each A share more affordable but still expensive and retain the 10,000:1 voting preference.
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… split the A shares so that it isn’t necessary to convert $500,000 worth of stock to raise
$50,000 of living expenses. A five to one split would make each A share more affordable but still
expensive and retain the 10,000:1 voting preference.
I suppose so, but really, how many A-share holders really care about the voting rights?
There is a certain prestige to A-shares, and a certain utility because holding them discourages selling.
But if you’re an A-share holder and need a bit of money, converting one is the obvious route.
Holding N-1 of the A shares and a thousand of B-shares isn’t so bad for most such people.
Of course, one of the suggestions in “100 reasons to hold Berkshire” was that you could simply
withdraw your living expenses from your brokerage account as a margin loan and keep all your shares.
They (were assumed to) rise in value so fast that the margin loan would always remain a trivial fraction of the portfolio value.
I don’t think many would advise that now.
Jim
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Holding N-1 of the A shares and a thousand of B-shares isn’t so bad for most such people.
I think you meant fifteen hundred B shares.
Holding N-1 of the A shares and a thousand of B-shares isn’t so bad for most such people.
I think you meant fifteen hundred B shares.
I think he probably did mean a thousand: if you don’t need $482 000 right away, convert one A-share to 1500 B, sell 500 B for $160 000 cash to pay for the property tax on your mansion (which is why you are doing this), and keep the other 1000 B-shares for the coming months’ expenses.
dtb
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I think he probably did mean a thousand: if you don’t need $482 000 right away, convert one A-share to 1500 B, sell 500 B for $160 000 cash to pay for…
Well, yes, that was my thinking.
A person converting an A to Bs for the ability to raise cash will start selling the B shares, and at some point will probably have only 1000 of them left.
For some A-share holders that might be a single weekend of beer and pizza for them and their 5000 closest friends, I suppose.
Jim
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So you’re the one that voted we’ll never get to $500,000 per share. I honestly think we’ve reached this point already where the A shares are too unwieldy. That’s why the B shares exist. I think if anything Buffett is giving a giant middle finger to wall street by refusing to split the shares. Kids are taught in schools what share splits mean, and news sites cover when a split occurs as if it’s a great thing. And yet, it’s nothing. It’s cutting a pie into 16 pieces instead of 8.
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I usually offer opinion on boards that don’t matter much but I have something on this that gives me some credibility !
I got a chance to ask a question of Buffett at the 2012 Annual Meeting. Almost the words you’ve chosen. I even threw in, “say, a million dollars“ as to when a split may happen.
Munger’s answer: Don’t hold your breath
Buffett: No, we won’t split the A, that’s why we have the B and we did split the B to accommodate every single BNSF shareholder during that takeover. So in the future, if there’s a deal involving stock, ther may be.
But NO!
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Was it Mr. Buffett who said, “A fool and his money are soon welcome everywhere.”?
For some A-share holders that might be a single weekend of beer and pizza for them and their 5000 closest friends, I suppose.
I doubt very many (real) people who own A-shares are fools, though that would not be impossible.
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The last B-share split that I remember was a 50:1 split in 2010.
That didn’t help or hinder me in the least.
Rich (haywool)
Speaking of stock splits it doesn’t seem like companies are splitting their shares like they used to…splits were all the rage in the internet bubble of the 2000’s but not so much late!y.
Is there any reason why that would be?
For fair disclosure I couldn’t care less about splits.
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Good question. I am against splits unless there is a real need (like BNSF deal) but am not surprised they do attract attention from less experienced investors who want a cheaper price/share and don’t really understand the pizza and # of slices analogy.
Both the AAPL and T**** splits back in 8/20 seemed to attract lots of headlines and attention. I feel sure they would have done well regardless of split. I had read some folks suggesting an AMZN split to try to generate more interest in it and possibly to get it moving after 18 months of being range bound.
Good question. I am against splits unless there is a real need (like BNSF deal) but am not surprised they do attract attention from less experienced investors who want a cheaper price/share and don’t really understand the pizza and # of slices analogy.
A hungry man went into a pizza parlor and ordered their largest pizza with everything on it. The cook prepared it and put it in the oven. 20 minutes later, he took it out and asked the man, “Should I cut it into six or eight slices?” The man then realized that his eyes were bigger than his stomach and that that was too much pizza. He said, “You better cut it into six slices. I do not think I could ever eat eight slices.”
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That leaves the purchases to institutional buyers whose votes on shareholder submitted proxy issues are less predictably pro management. At the same time, the number of outstanding A shares continues to shrink as longtime shareholders convert.
There is one institution that will always be pro-management: Berkshire Hathaway itself!
I don’t think that the A shares will ever split, but B shares probably will split again. Because people have the option to convert A shares to B shares, there’s less reason to split A shares. B shares will split if it’s necessary to make a deal (as was the case with BNSF), or if the share price becomes high enough to spur the creation of all-Berkshire unit investment trusts (which prompted the creation of B shares in the first place).
I expect the number of A shares to decline in the years and decades ahead due to buybacks and conversions to B shares. (B shares will increase in number.) Over time, more and more of the A shares will be in the Treasury or in the hands of the inner circle. The percentage of A shares in the hands of outsiders will shrink over time.
So I don’t see any chance of a takeover.
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