Berkshire Hathaway shareholders will vote on whether to conduct a 50-to-1 stock split for BRK.B shares. The proposal has been made to help reduce the price of individual BRK.B shares so that they can be offered to holders of Burlington Northern stock as a merger and buyout.
Reasons for and against the split:
|For a split||Against a split||Observations neither for nor against|
A lower-priced BRK.B would be better for those who wish to dollar-cost average their purchases of the stock
A lower-priced BRK.B would be more accessible to those investors who would like to purchase shares for their IRAs, contributions to which are limited to $5,000 or $6,000 per person in 2009
A lower-priced BRK.B would probably be added to major stock-market indices like the S&P 500, which would cause additional demand for the stock as index-based mutual funds would be compelled to purchase the stock
A lower-priced BRK.B would encourage lots of novice investors to pay more attention to Warren Buffett's advice, which could be beneficial in promoting value-based investing
A split which would allow current Burlington Northern shareholders to accept a stock swap would be fair to those shareholders, allowing them to avoid needless excess taxation in a transaction they did not initiate
A lower-priced BRK.B would be less exclusive as an investment, reducing the perceived prestige of share ownership
A lower-priced BRK.B would be more heavily traded, which would increase the volatility of the stock's market price
A lower-priced BRK.B would be more attractive to stock speculators (like those who wager on penny stocks), who are presently deterred from speculating on Berkshire due to the high share price
A lower-priced BRK.B would attract many more individual shareholders, making the already-huge shareholders' meeting even more unwieldly
The share price of BRK.B has no effect on the company's book value, which is the real measure of its strength
Disclosure and disclaimer: The author owns Berkshire Hathaway stock. This is not stock advice and shouldn't be taken as such.