It’s reported that Warren Buffett’s Berkshire Hathaway will likely approve a 50-to-1 stock split tomorrow in order to finance the company’s purchase of Fort Worth-based BNSF Railway. That’s supposed to drop the price of the company’s Class B shares (now $3,247) down to about $65.
That would enable “inferior” investors to afford the stock. Here’s what Buffett wrote in 1984:
Were we to split the stock or take other actions focusing on
stock price rather than business value, we would attract an
entering class of buyers inferior to the exiting class of
sellers. At $1300, there are very few investors who can’t afford
a Berkshire share. Would a potential one-share purchaser be
better off if we split 100 for 1 so he could buy 100 shares?
Those who think so and who would buy the stock because of the
split or in anticipation of one would definitely downgrade the
quality of our present shareholder group.
Buffett must believe in the long-term value of his deal with BNSF, to depart from a long-held strategy like this.
