Class A shares of Warren Buffett’s Berkshire Hathaway closed above $500,000 a share on Wednesday, setting a new high-water mark for the stock.
It was the first time the shares have ever closed above half a million dollars, and helped push the company’s market cap above $730 billion. It is now the No. 6 most valuable company in the U.S.
Berkshire Hathaway’s class A shares have long been one of the most expensive single stocks investors could buy, and as a result, investors have repeatedly asked Buffett about a potential stock split, which is when a company divides up its shares to lower their price and increase the overall amount of shares available.
In response, Berkshire introduced cheaper class B shares in 1996, priced at a substantially more affordable $341 as of Thursday afternoon, but has consistently refused to split the company’s original class A offering.
It is because of this refusal, not in spite of it, that the company has had such a strong track record in growing its value, Buffett has argued.
At the 1995 annual Berkshire Hathaway shareholder’s meeting Buffett acknowledged that having such a high-priced stock — at the time, it was trading around $25,000 per share — could be “anywhere from awkward to disadvantageous” for investors, especially when it comes to gifting shares. But he said that the barrier to entry was intentional.
“We want to attract shareholders who are as investment-oriented as we can possibly obtain, with as long-term horizons,” he said. If Berkshire were to split the stock and lower its price, “we would get a shareholder base that would not have the level of sophistication and the synchronization of objectives with us that we have now.”
There are just over 615,000 class A shares outstanding, compared to roughly 1.3 billion outstanding class B shares.
Buffett added that he saw no incentive in having a cheaper stock that has more volatility if it isn’t creating “intrinsic value” for investors. “There are a lot of people that are attracted to stocks that are going upward. It doesn’t attract us,” he said. “We don’t care to have it sell higher, except as intrinsic value grows.”
As recently as 2011, Buffett’s long time right hand man Charlie Munger said that Buffett had a joke he liked repeating to his aging friends: “May you live until the A stock splits.”
There have been a number of high-profile stock splits in recent years, with Amazon and Google parent Alphabet both announcing 20-for-1 splits of their shares once they topped $3,000 each earlier this year. Those announcements followed Apple and Tesla, which in in 2020 both split their stocks as their valuations skyrocketed.
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