Berkshire Hathaway B (BRK.B) shares split 50 for one January 21st. In the past, Warren Buffett said stock splits are for idiots, since the economic value of the enterprise does not change. The action of splitting shares has often resulted in the stock price gaining due to the price of the shares because they appear to be cheaper.
In the case of BRK.B, the motive for the split was said to be so that the BNI shareholders could participate in the tax-free exchange of 1 BNI share for $100 worth of BRK.B stock. Whatever the motive, the result of the split has been BRK.B shares have appreciated 10 and a half percent since the ex-date, while the S&P 500 index has fallen 6.3%.
In addition to becoming more affordable to the common investor, the split has enabled the liquidity of the B shares to reach the requirements for inclusion in the S&P 500 itself. This inclusion forces all the funds and ETFs which are tracking the SPX to purchase BRK.B stock. This inclusion will occur on the close of business today February 12, 2010.
This week’s run up in the shares likely indicates these index funds have been pre-buying the shares in Berkshire B shares to lessen the amount of shares needed to be bought on the close. The total amount of stock required is estimated to be anywhere from 150-180 million shares!
This is more than 12 times the average daily volume the shares have traded since the split date. To raise money for the purchase of Berkshire B the indexers will have to sell the remaining 499 stocks in the SPX in addition to the BNI that is coming out of the index tonight.
Look for large volume in all S&P500 names on the closing bell and possible large, yet temporary, price fluctuations.
Photo Credit: bunnicula
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Tags: Berkshire Hathaway, BRK.B, S&P500, Stock Split, Warren Buffet
