Berkshire Hathaway Stock Split, S&P 500, & Index Funds

Berkshire Hathaway’s (BRK) recent announcement that it was buying railroad Burlington Northern Santa Fe (BNI) also included a provision for a 50-for-1 stock split of B shares so that smaller shareholders of BNI would be able to be converted to Berkshire shares and avoid capital gains. Warren Buffett has been trying to avoid this for years, so after some random web surfing — I mean… research, I figured I’d share my findings.

At the end of trading yesterday 11/18, Berkshire’s A shares currently cost $103,100 apiece and B shares were $3,430. After a 50-to-1 split, a B share would cost about $69. Several news articles are talking about how this brings the share price down to the “common man”. For a $69 investment, you should able to attend the Berkshire Hathaway Annual Meeting in Omaha this May, although you could also buy tickets for $5 on eBay directly from BRK.

But wait, you may already own a piece of Berkshire… or you may soon.

S&P 500
Right now, Berkshire Hathaway is not part of the S&P 500. Many folks (including me in the past) thought the S&P 500 was simply the largest 500 companies in the US, but not quite. I’ve read that BRK is likely excluded due to inadequate trading volume of their high-priced shares. If the stock split occurs, it is possible that BRK will become part of the S&P 500 and thus be bought by every S&P 500 index fund out there. I’m sure Wall Street traders have already begun the speculating.

As of 1/18, the market cap of BRK was roughly $160 Billion. Looking at this chart of S&P 500 components sorted by size, BRK would actually be #9 on that list, as it is worth more than even Chevron or AT&T. If included, BRK would constitute about 1.65% of the index.

Total Stock Market
However, you may already own a piece of Berkshire if you own part of a mutual fund that tracks an index following the “total” US stock market. For example there’s the Vanguard Total Stock Market Index Fund (VTSMX), which is held within all of the Vanguard Target Retirement Funds. By my rough calculations, BRK is approximately 1.3% of the broad US market. So for every $10,000 of VTSMX or VTI you hold, you own $130 of BRK already.

Sharebuilder
Of course, for years now you could own $1 or $50 or $500 of BRKB by buying partial shares of BRKB through Sharebuilder ($50 bonus). You wouldn’t want to go too small as the $1 to $4 commission would take too big a bite, but it can be one way to gradually accumulate BRK shares. I think I have about $45 worth right now, myself, mainly due to an opening bonus.

Comments

  1. It is my understanding that many index funds to do not hold everything in the index, or everything at its weighted percentage in the index. Instead, they are trying to track the index, which they may tweak their holdings to do so. Using your example of VTSMX, clearly they can not own every stock at its market cap percentage, instead it holds about 3400 individual stocks, including BRKB (but only a little more than 2 tenths of a percent – 268 million USD out of 108 billion USD) https://personal.vanguard.com/us/FundsAllHoldings?FundId=0085&FundIntExt=INT&tableName=Equity&tableIndex=0&sort=marketValue&sortOrder=desc

  2. no need to estimate that BRK is 1.3% of market , thereby making its holding % in VTSMX 1.3%

    if you look at the holdings page of VTSMX , u can see the actual dollar holdings of VTSMX for BRK @ [ https://personal.vanguard.com/us/FundsAllHoldings?FundId=0085&FundIntExt=INT&tableName=Equity&tableIndex=1 ]

  3. I don’t think you mean “a B share would cost about $69 a year.”

  4. lol i got that same bonus when you got it jonathan…i think our investment is down to the $30 range somewhere…interesting info. thanks!

  5. I used to report on mergers and when I first read your post I thought you got the price completely backwards. Turns out you got the split backwards. It should have been written 50-FOR-1 not 50-to-1. Just a clarification for you and all the readers that are familiar with the workings of forward and reverse stock split mechanics!

  6. @Brian, palakkadan – Thanks for the link. May I ask how you got the $108B number? I couldn’t find where you could see the total value of Total Stock Market Index across all share classes.

  7. @Chuck – Oops, corrected, meant per share but even that was redundant…

    @MikeS – Fixed, thanks!

    @Eric – Really? Darn. :)

  8. after a 50 for 1 split, does the relative price action that Class B shares can never sell for more than a fraction above 1/30th the price of Class A shares no longer apply?

  9. On the fund homepage, they list the total net assets: https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT

    Its possible that the percentage is slightly off, as the total net assets is as of 10/31/09 and the holdings numbers are as of 9/30/09, but it should not be significant.

  10. It looks to me like all the talk and attention on BRK is a waste of time and energy. BRK, a holding company paid a premium of 30% (30% above current value) for the Burlington Northern shares;

    The 10 yr ave return for BRK is: 4.62% whereas….

    The 10 Yr ave. return for US small value: 11%

    The 10 yr ave. return for emerging mkts: 12.52%

    The 10 yr ave. return for US large value : 7%

    * as calculated by DFA Index calc. and the Center for Research and Securities pricing.

    Just some thoughts……maybe a globally diversified portfolio can outperform the “Oracle”

  11. did BRKB actually split? started following its price since seeing 1st article about it. unless i totally missed the split, have not seen the price come down at all?

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