I spend a good portion of my day on the computer. I’m constantly researching investment techniques, studying trading ideas, and watching trends. My research is like wandering through the basement of the Smithsonian. When you open a drawer, you never know what you’ll find. Sometimes it’s nothing… sometimes it’s a pot of gold.
I recently stumbled across a pot of gold. I discovered a website with copies of old letters from Warren Buffet to his partners. These were written before Warren Buffett took over Berkshire Hathaway. They were penned long before he was held up as the greatest investor of all time. The letters were written between 1959 and 1969.
I’ve been studying them closely with great fascination. I’ll be sharing the insights I’ve gleaned from a young Warren Buffett soon. But those articles will have to wait for another day… There are a few things about Buffett that everyone should know. Number one on my list is Buffett’s stubborn attitude.
It may have made him rich, but for you and me, it’s a thorn in our side. Here’s my beef. Buffett refuses to split the stock of Berkshire Hathaway. He’s stubborn and refuses to do it. For those of you who don’t know, the management of a company can easily change the number of shares outstanding. All it takes is board and sometimes shareholder approval. It’s easy to do. It’s just a little paperwork.
The impact to a company is minimal. Let me give you an example… Let’s say a company’s stock trades for $100 per share and they have 1 million shares outstanding. The company has a value of $100 million ($100 times 1 million shares). Management decides to split the stock 2 for 1 (we’ll get to why in a moment).
Here’s what happens to the stock. Right after the split, the stock will be valued at $50 per share, but there will be 2 million shares outstanding. So if you owned 100 shares, after the split you’d own 200. Now, you’ll note the value of the company hasn’t changed. It’s still worth $100 million.
So why split the stock?
There are a lot of reasons. The number one reason is to keep it affordable for new investors.
Many companies try to keep their stock price between $20 and $100 a share. That way the average investor can buy stock without a struggle. Buffett doesn’t care about the little guy… or the new investor. Just look at his stock price. Berkshire Hathaway (BRK-A)… go ahead, try it. Type it in and get a quote. If you’re like most, you’ll stare at the computer screen and wonder how a typo like that could occur.
Trust me, it’s not a typo. Right now as I write this, the price of one share of Berkshire Hathaway stock is $100,163. Yup, over one hundred thousand dollars. I know people who have been saving all their life and don’t have $100,000 in cash to put into a single stock. One share of Berkshire is more than the price of a house in some areas.
Seriously. What’s the average investor to do?
If you start out investing in an IRA, you might have $2,500 or $3,000 to start (if you’re lucky). Not a chance you’ll be investing in Berkshire stock any time soon… thanks Warren. Now, some people will note that Berkshire trades a “B” class of shares. Right now they’re trading for over $3,000 a share. That’s a little better, but it still puts investing in Berkshire out of reach for the average investor…
Why doesn’t he split the stock? Why doesn’t he make it easier for new investors to buy? Warren claims he doesn’t want to split the stock because he doesn’t want “traders” owning it. He only wants long term investors.
No problem Warren… I’m ready, and I’m sure thousands of others are ready too. I’m willing to sign up and buy stock right now. And I promise to hold it forever. (Well, I might sell when you die… but you’ll be dead and probably won’t care.)
Thousands of us are ready to buy and profit from your investing wisdom… just give us the opportunity.
Remember, the median household income in the USA is just over $50,000. Why would you require everyday Americans to try and save two years worth of income (never mind taxes and other expenses) just to buy a single share of Berkshire Hathaway stock?
Americans need to start saving for retirement today… not in two or ten years. What better way than investing in the stock of Berkshire Hathaway?
Warren, be a man. Split your Berkshire Hathaway stock.
Just in case Warren ignores my pleas, there is another way you can invest with Warren. Take a look at the Sequoia Fund (SEQUX). Berkshire Hathaway makes up more than 20% of the fund. It’s not a perfect way to get exposure to Warren’s greatest hits, but their minimum investment is only $2,500. After getting a piece of the fund, you can invest as little as $100 thereafter.
Brian Mikes is the editor of the Dynamic Wealth Report, one of the world’s most popular investment newsletters that offers investment ideas and news you can’t get from the mainstream press. Brian and his team bring decades of Wall Street and Silicon Valley experience to help you discover profitable trading ideas you can use today.