BRK.A (Berkshire Hathaway Class A stock) is exceptionally expensive primarily because its CEO, Warren Buffett, has famously chosen not to perform a stock split. This decision is the single biggest factor contributing to its remarkably high per-share price.
The Primary Driver of BRK.A's High Price
While various factors can influence a company's stock price, the most significant reason for BRK.A's premium valuation per share is the deliberate decision by Warren Buffett to avoid a stock split. Unlike many publicly traded companies that split their shares as their price grows, Berkshire Hathaway Class A has maintained its original structure, allowing its share price to climb unchecked over decades of compounding success.
What is a Stock Split?
A stock split is a corporate action where a company divides its existing shares into multiple new shares. For instance, in a 2-for-1 stock split, one share becomes two, and the price per share is typically halved. The total value of an investor's holding remains the same, but they own more shares at a lower individual price.
Here's how stock splits generally work:
- Increases Share Count: The number of outstanding shares increases proportionally to the split ratio.
- Lowers Share Price: The market price per share decreases, making the stock more accessible to a broader range of investors.
- Maintains Market Capitalization: The company's overall market value (share price multiplied by the number of shares) remains unchanged.
The following table illustrates the general effect of a stock split versus no stock split:
| Action | Effect on Share Count | Effect on Share Price (Generally) | Goal (Often) |
|---|---|---|---|
| Stock Split | Increases | Decreases | Boost liquidity, make shares more affordable |
| No Stock Split (BRK.A's Case) | Stays the Same | Remains High | Maintain exclusivity, attract long-term investors |
Implication of No Stock Splits for BRK.A
By consistently opting against stock splits, Warren Buffett has ensured that the original number of BRK.A shares remains fixed. As Berkshire Hathaway's underlying businesses have grown immensely in value over the years, this increase in value has been concentrated in a relatively small number of shares. This scarcity, combined with the company's strong performance and legendary leadership, causes the price of each individual BRK.A share to reach extraordinary levels.
This strategy effectively limits the pool of potential investors to those with significant capital, fostering a shareholder base primarily composed of long-term investors rather than short-term traders.
