$211,660.00

That’s the price for one share of Berkshire Hathaway Inc. ( BRK.A ) Class A stock.

It’s also a lot of money.

For $211,660.00, you could pay for 4 years of a college education, make a down payment on a $1 million house, or buy yourself a Lambo.

You could also buy almost 300 shares of Alphabet Inc ( GOOGL ) stock (currently trading for ~$730) and almost 2,000 shares of Apple Inc ( AAPL ) stock (currently trading ~$110).

So what gives?

Why is Berkshire Hathaway stock so damn expensive?

“Expensive” is Relative

First, I have to admit that the title of this article is a little misleading.

The term “expensive” is relative when it comes to stocks (that is, relative to some fundamental metric like book value or cash flow). Expensive should really be a synonym for overvalued, whilecheap should be a synonym for undervalued.

Just because stock A trades for $80 and stock B trades for $40, it doesn’t mean that stock A is more expensive than stock B – it just means that it costs more. Stock B might indeed be more expensive than stock A if, say, its P/E ratio was 50 while stock A’s P/E ratio was 5.

So, the correct question to ask is: Why does one share of Berkshire Hathaway cost so much?

Buffett Has Never Split Berkshire’s Stock

In 1980, one share of Berkshire Hathaway stock cost less than $300. In 1990, it cost about $7,000. In 2000, it cost about $50,000. And today, as you know, it costs over $200,000.

Now, Berkshire Hathaway isn’t the only company whose total equity value has risen over the years. In fact, Berkshire’s total equity value (more commonly called market capitalization or just market cap) isn’t even the highest – it’s the 4th highest, behind Apple (#1), Google (#2), and Microsoft Corporation ( MSFT ) (#3). The thing is, each of these other companies have split their stock.

In a stock split, a company increases the number of shares outstanding while lowering the price accordingly. For example, say a stock was trading for $1,000 a share. Everyone who owned oneshare previously worth $1,000 for a total value of $1,000 would now get two shares worth $500 for a total value of $1,000.

Splits don’t change anything fundamentally about a company or its valuation, but they tend to make a company’s stock more attractive to retail investors (e.g. you, me, or your mother-in-law), which could increase liquidity and might eventually cause the share price to increase slightly.

In 2014, Apple’s stock was trading for $650 until the company implemented a 7-for-1 stock split. I owned a couple shares, and the next day I magically owned 7x more – but they were each worth 7x less ($90 instead of $650). The value of my total Apple holdings hadn’t changed and the value of Apple as a company hadn’t changed. It was just arithmetic.

Again, many companies will do this to make their stock’s appear more attractive to smaller investors and there’s nothing intrinsically wrong with doing so.

But Buffett has never split Berkshire’s stock. Why not?

Berkshire’s Shareholders are Buffett’s Partners

In The Snowball: Warren Buffett and the Business of Life, Buffett explains his reasoning for not splitting Berkshire’s stock:

“I don’t want anybody buying Berkshire thinking that they can make a lot of money fast. They’re not going to do it, in the first place. And some of them will blame themselves, and some of them will blame me. They’ll all be disappointed. I don’t want disappointed people. The idea of giving people crazy expectations has terrified me from the moment I first started selling stocks.”

Buffett hasn’t split Berkshire’s stock because he’s afraid it will encourage people to try to day trade the stock and try to make a quick buck.

Buffett has always viewed Berkshire’s shareholders as partners in the business, rather than just investors in a large public company. He wants them to stick around and to stay invested.

Because Berkshire stock is so expensive, buying and selling a share are big decisions to make (like buying a house or choosing a college to attend) and you’ll likely be thinking about the long-term when you decide to buy or sell, rather than what the share price might do tomorrow or even in the next hour. And that is Buffett’s intention.

There are Always Class “B” Shares

If you don’t have $211,000 sitting around, there’s no need to be sad – you can still be a Berkshire Hathaway shareholder.

In 1996, Berkshire issued much cheaper Berkshire Hathaway Inc. Class B ( BRK.B ) shares. Nicknamed “Baby Bs,” the shares were issued to prevent fund managers who wanted to set up a mutual-fund like structure that would sell slices of the Class A shares in smaller pieces. The Class B shares have 1/10,000th of the voting rights of a Class A share and currently trade for about $140.

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