There are a variety of reasons why Apple has chosen to split their stock in a 7 for 1 stock split. But I doubt pandering is one of them.

MarketWatch: Apple panders to the masses with its ‘cheap’ stock

Billionaire investor Warren Buffett is famously opposed to stock splits. The Class A shares of his company, Berkshire Hathaway, trade at about $192,000 a share and never have split. Buffett believes that a company’s stock should reflect its “intrinsic value,” or core fundamentals, and not factor in any subjective elements such as emotions.

Much respect to the Oracle of Omaha but the author is giving him a free pass here. Yes, it is true that Berkshire Hathaway has never split their Class A shares… but did the author stop to think why Class A shares exist at all?

From Berkshire Hathaway’s recently updated website:

Berkshire Hathaway Inc. has two classes of common stock designated Class A and Class B. A share of Class B common stock has the rights of 1/1,500th of a share of Class A common stock except that a Class B share has 1/10,000th of the voting rights of a Class A share (rather than 1/1,500th of the vote). Each share of a Class A common stock is convertible at any time, at the holder’s option, into 1,500 shares of Class B common stock. This conversion privilege does not extend in the opposite direction. That is, holders of Class B shares are not able to convert them into Class A shares. Both Class A & B shareholders are entitled to attend the Berkshire Hathaway Annual Meeting which is held the first Saturday in May.

Berkshire Hathaway Class B shares trade at a whopping $127.991. I guess that is where all the emotions free investors are. Not way down there with Apple at $93.702

For Berkshire Hathaway, their Class A share price is as much a marketing event as it is a display of “intrinsic value.” Berkshire Hathaway and Buffett get a lot of publicity out of those figures. I’m sure it’s not pandering. It’s only pandering when Apple does it.

Update: I also feel compelled to point out that a stock’s price means nothing about its intrinsic value. The market capitalization, or market value, of a firm is equal to it’s shares outstanding multiplied by the per share price. Stock splits simply increase the shares outstanding and decrease the per share price. There is no value created or lost in this mechanical process.

You have to have some context before you can tell anything about a firm’s value. This is why ratios like price to earnings are so important, they give context. Any company can change their stock price by either stock splits or reverse stock splits. I like how the MarketWatch author puts the word cheap in quotes, likely because they know stock price and value are not the same thing.

Apple panders while others show value

  1. At the end of trading on 9 June 2014

  2. At the end of trading on 9 June 2014

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