Baby Berkshire

  

Berkshire Hathaway Class B shares used to be only for Fat Cats, yacht-owners, and "I-have-so-much-money-I-don't-know-what-to-do-with-it" types. They were trading at $3,476 each, before each share was split into 50 smaller shares in 2010. This stock split is known as "Baby Berkshire."

Why the split? Berkshire Hathaway Class B shares weren't traded enough to make them part of the S&P 500, i.e. they were too cool for school. Splitting the few, large, expensive shares into more affordable, lil' baby shares brought them into the mainstream, which didn't take long.

Berkshire Hathaway Class B shares were split into 50 baby shares each at the end of January, and joined the popular kids in the S&P 500 in early February.

Why doesn't BRK split so that it's not a gadjillion dollars a share and impossible for Joe Sixpack to buy? Because servicing millions of shareholders is way more expensive than servicing tens of thousands. And the number itself is kind of a victory lap for W-Buff, who opens every annual report with its stock price in the mid 70s as a kind of friendly FU to everyone running laps slower than BRK. Which is pretty much everyone.

Related or Semi-related Video

Finance: What Are Shares Outstanding?268 Views

00:00

Finance a la shmoop what are shares outstanding Okay first

00:07

things first this is not a qualitative assessment of shares

00:11

shares maybe bad awful mediocre good or even outstanding but

00:15

that's not what this term refers to it also doesn't

00:17

mean that they're you know out standing in the ring

00:21

paying dividends in the way that they don't do that

00:25

Sorry won't sing again Alright rather shares outstanding is a

00:29

technical term that reflects how many pieces make up the

00:32

sum total of the ownership pie of a company So

00:38

here is what baby's first chainsaw dot com looks like

00:41

it has forty million slices and is currently trading for

00:44

fifteen bucks a slice while new toddlers were so into

00:47

mechanical power tools or how sick and twisted the writers

00:51

it's from up Are you been here anyway If you

00:54

didn't catch the cleverness here a slice equals a share

00:57

so the company has forty million shares outstanding They're trading

01:01

at fifteen bucks age and that gives the company a

01:04

market value of six hundred million dollars That means that

01:08

if someone wanted to buy the entire pie they could

01:09

in theory pay six hundred million bucks assuming everyone would

01:13

Sell them all their shares for fifteen bucks each and

01:16

the shares outstanding Change Sure Bunch of factors change that

01:20

number all the time When an employee decides to either

01:23

buy out or sell the stock options granted to her

01:26

when she joined the company Well those options convert into

01:29

shares So if she had ten thousand options and sold

01:33

them the company would have then ten thousand fewer options

01:37

outstanding We're kind of like a liability but it would

01:40

now have forty million ten thousand shares outstanding The options

01:45

just converted into shares on men Okay what if the

01:48

company wanted to raise thirty million bucks to buy a

01:51

small competitors for all cash Well it could sell to

01:54

the public two million shares at fifteen bucks a pop

01:57

Did it already own those shares Well likely not They

01:59

weren't just sitting in the vault in treasury stock so

02:02

it had to print those shares out of thin air

02:04

to dot and then sell them to new buyers So

02:07

add two million to the total and now the company

02:09

has forty two million ten thousand shares outstanding It also

02:14

has thirty million bucks more in cash on its balance

02:16

Sheet by the way now there's a danger in the

02:19

increase in shares outstanding It's called share creep and it's

02:23

not this guy Rather it refers to the gradual increase

02:26

in shares outstanding otherwise known as dilution because now instead

02:30

of a six hundred million dollar valuation with forty million

02:33

shares at fifteen bucks the company if it were to

02:36

still have a six hundred million dollar valuation now it's

02:39

more shares outstanding would see its stock price drop teo

02:42

six hundred million divided by forty two million ten thousand

02:45

and yeah that gets you fourteen dollars in twenty eight

02:47

cents a share So in the process of the options

02:50

being converted and the cash being raised by selling equity

02:54

the company destroyed seventy two cents a share in value

02:58

Now in real life the market probably goes up and

03:01

makes account for all that What were omitting here is

03:04

that the company raised thirty million bucks of cash in

03:07

the process Cash that well we investors presume it will

03:10

use wisely and not on you know kibble for the 00:03:14.07 --> [endTime] office terrier

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