Legendary value investor and Berkshire Hathaway CEO Warren Buffett has never allowed a stock split of his company's Class A shares (BRK-A), reasoning that to do so would counter his basicbuy-and-hold investment philosophy.
Simply put: Buffett focuses on high-quality companies with long-term growth and profit potential. And by refusing to split Berkshire Hathaway's Class A stock shares, Buffett seeks to attract investors after his own heart—namely, those interested in long-term plays who have extended investment horizons.
Key Takeaways
- Berkshire Hathaway Chairman and CEO Warren Buffett has never allowed a stock split of the company's A shares, despite their high trading prices.
- Buffett believes that splitting the stock would go against his strategy and that the high price tag attracts like-minded investors seeking long-term gains in intrinsic value.
- While the A shares have climbed out of the price range of many investors, B shares trading at a fraction of the cost make it possible to invest in Berkshire Hathaway at a lower price point.
What Is a Stock Split?
A stock split divides the outstanding shares of a company by an even ratio while maintaining the overall value. For example, a 2-to-1 stock split would turn every share into two shares; a 3-to-1 split would divide each share into three shares. If you had one share worth $50, after a 2-to-1 stock split you'd have two shares worth $25 each. The value you hold remains the same, but the number of shares has changed.
Stock splits help a company boost liquidity. They can also make shares more affordable for retail investors.
Berkshire Hathaway's Transformation Under Buffett
While the investment world has come to think of Berkshire Hathaway as synonymous with Warren Buffett and his investing prowess, the company actually began as a textile manufacturer, with a history dating back to the 19th century. In 1965, Buffett's firm Buffett Partnership Limited purchased enough shares in Berkshire Hathaway to take control of the company. At the time, the company and the textile industry as a whole were struggling due to shifts in the global economy.
Berkshire temporarily continued its textile operations after Buffett took the reins, with a few years of success partially propped up by tax losses carried forward from the company's difficult years. However, the shape of Berkshire Hathaway shifted for good when Buffett orchestrated Berkshire's purchase of a small Nebraska-based insurer, National Indemnity Company in 1967. Although Buffett later admitted that it was a mistake to tie the insurance investment to the stumbling 61%-owned textile firm, this was the first step in transforming Berkshire into the holding company behemoth that it would eventually become.
Under Buffett's leadership, Berkshire Hathaway went on to expand its holdings across a wide array of industries. Although Berkshire's stronghold remains in insurance, the company now has subsidiaries in the materials and construction, financial, clothing, utilities, entertainment, media, and household products industries, among others.
Reasons Against a Stock Split for BRK.A
As Buffett expanded Berkshire's reach across industries, the company's stock price responded with massive gains, with class A shares soaring above half a million dollars during March and April 2022. Since these elevated share prices put the stock out of reach for many investors, one logical choice would be to carry out a stock split—a transaction in which companies lower their stock price by increasing the number of outstanding shares.
$554,721
The closing price of one share of Berkshire Hathaway Class A stock (BRK.A), as of Sept. 11, 2023.
In Buffett's view, the advantages of abstaining from a stock split outweigh the disadvantages of the stock's high price per share. Although the price tag may be a limitation for many investors, Buffett believes that it actually incentivizes the types of investors that Berkshire hopes to attract—those with a long investment horizon that are interested in growing intrinsic value rather than simply capitalizing on the volatility associated with lower-priced stocks.
Class B Shares Provide Lower-Priced Option
Interestingly, Buffett has a different attitude when it comes to Berkshire Hathaway's Class B shares (BRK.B). Created in 1996 with the stated purpose of enabling retail investors to buy Berkshire Hathaway stock directly, Class B shares sell for a fraction of the Class A share price—around $369 per share as of Sept. 12, 2023.
Unlike the company's Class A shares, Berkshire Hathaway's Class B shares do have the potential to split. In fact, they did split on Jan. 21, 2010, at an astonishing 50-to-1. Their price was $70.72 at the time.
While some might argue that this action contradicts Buffett's no-split posture on his Class A shares, this duality is quite intentional, as it lets Buffett offer an affordable version of Berkshire Hathaway stock to smaller investors.
Is Warren Buffett Against Stock Splits?
Warren Buffett has never allowed a stock split of Berkshire Hathaway's A shares (BRK.A). Although the high share prices may be a limitation for many investors, Buffett argues that splitting the stock would go against the tenets of his investment philosophy. Eschewing a stock split makes Berkshire's A shares attractive to investors with long time horizons who are interested in building intrinsic value. However, Buffett is not totally opposed to stock splits. Berkshire's B shares (BRK.B), created in 1996 to provide retail investors with a lower-cost option for investing in the company, have split in the past.
What Does Berkshire Hathaway Invest In?
Originally a textile company, Berkshire Hathaway transformed under the leadership of legendary investor Warren Buffett. Today, insurance subsidiaries make up a large part of Berkshire's portfolio, but the company also owns private businesses in an array of industries, from materials and construction to candies and apparel. Berkshire Hathaway also holds significant minority interests in public companies such as Apple, Bank of America, Chevron, and Coca-Cola.
What Are the Advantages and Disadvantages of a Stock Split?
In a stock split, a company increases the number of shares outstanding while proportionally lowering the price per share. The advantage of a split is that the lower share price makes the stock more accessible, which is particularly important for retail investors who may have a limited ability to buy high-priced shares. However, the downside is that lower post-split share prices may bring increased volatility to the stock's performance.
The Bottom Line
The 92-year-old Buffett has remained true to his stock-splitting principles in the 60-odd years he has helmed Berkshire Hathaway. He has not announced any intention of stepping down—although at the 2021 Berkshire Hathaway shareholder meeting, Berkshire Hathaway Vice Chairman Charlie Munger indicated in an off-hand remark that Buffett's successor as CEO would be Greg Abel, currently CEO of Berkshire Hathaway Energy and Vice Chairman in charge of noninsurance operations. Abel's philosophy regarding stock splits may well be different.
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