Buffett Wins Berkshire Approval for Cheaper Stock, Urges Patience
Billionaire investor Warren Buffett won shareholder approval for his “Baby Berkshires” on Monday, and immediately warned not to expect quick profit from his first new stock in three decades.
“We do not want people to come in and think it’s a hot stock and it will be a lot higher in a year,” said Buffett, who built his reputation--and his fortune--on a conservative, long-term investment strategy.
The new, cheaper class of stock in Buffett’s Berkshire Hathaway Inc. will become Wall Street’s second-most expensive issue--behind regular Class A Berkshire stock, which sells for $33,800.
The so-called Baby Berkshires should be issued Wednesday and are expected to trade Thursday on the New York Stock Exchange at about $1,000 a share, Buffett said at Berkshire’s annual meeting.
That would put it well ahead of what has been the second-priciest stock, shares in Washington Post Co., which rose 25 cents at $291.50 on the New York Stock Exchange.
Although hardly bargain-basement-priced, the new stock will allow more people to have a chance to own a piece of the legendary investment company, whose stock has quintupled from $6,675 a share so far this decade.
Buffett said he was forced to issue the cheaper shares to compete with the emergence of investment trusts that attempted to capitalize on his reputation by selling fractional stock units of Berkshire Hathaway.
Investment trusts could prey upon people with “unrealistic expectations” that Berkshires’ past successes could be repeated, Buffett said. He also argued the trusts were luring investors into paying steep management fees and thus tainting his company’s name.
“There are people who think it can happen again from this kind of base and it’s mathematically impossible,” Buffett said. “We don’t want to appeal subliminally to people who harbor these hopes.”
Berkshire will offer 350,000 shares of its new stock, and more if there is a greater demand. There is no limit on the number of shares that may be issued.
It will be the first sale of new shares to the public since Buffett took control of Omaha, Neb.-based Berkshire in 1964. He has repeatedly declined to split Berkshire Hathaway shares, something that would lower the price, arguing that cheapening it would encourage speculators who don’t share Buffett’s strategy of investing for the long term.
Buffett’s own stock in Berkshire Hathaway, according to Forbes magazine, has made him the nation’s second-richest man (behind Microsoft Chairman Bill Gates), with a personal fortune of about $11.8 billion.
He reassured the more than 5,000 stockholders who gathered for the meeting, which was more an informal question-and-answer session, that their investments would not be devalued by the new stock.
