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S&P 500 to include Berkshire Hathaway

January 26, 2010 | About:

Just released: Standard & Poor's has decided to replace Burlington Northern, currently an S&P 500 component, with the company acquiring it- Berkshire Hathaway. This is a common event, however it is an event that many long time shareholders of Berkshire Hathaway have wanted for a while. The inclusion in the S&P 500 will provide an immediate run up in Berkshire's share price and move it closer to full value. Did anyone other than me hear Buffett on CNBC prior to the special Berkshire Hathaway meeting that approved the split in the shares that created the float that allows for Berkshire inclusion in the index say that BRK-A appeared to be in the low end of its valuation range as it trades at a low multiple to its book value from a historical basis?

It looks like Berkshire's acquisition of BNI might not be as costly as first believed for the ratio BRK-B shares to every BNI falls as BRK-B's share price rises. Berkshires share price should continue to rise for S&P's market capitalization weighted index implies some significant buying if you compare BRK's total market cap to that of GE the company should have a similar weighting and with its price momentum liable to exceed GE down the road. You have to like a stock with support!

Good investing to all!!! Way to go Warren! Doug Kass are you still short? I guess Doug's 15-minutes of fame just might be over.

Rating: 3.5/5 (4 votes)

Comments

Geoff Gannon
Geoff Gannon - 4 years ago
Good points.

There will need to be a lot of buying in Berkshire - though not quite as much as in companies with similar market cap because Berkshire has a smaller free float due to Buffett's stake. S&P 500 is float weighted not market cap weighted.

It's still huge for a new addition to the S&P 500 whether you're looking at market cap or free float.
crafool
Crafool - 4 years ago
You are correct the index used to be market capitalization weighted and is now market capitalization free float weighted. Why would Buffett's shares not be considered float? I realize they are closely held, however weren't they acquired on the open market rather than unregistered? Any thoughts? Thanks for the clarification.

Happy investing to all!
bearuo
Bearuo - 4 years ago
Intrinsic value is very important and inclusion in S&P will certainly be a catalyst. But also important to keep in mind the number of BRK.B shares Gates' foundation is "advised" to sell each year.
Geoff Gannon
Geoff Gannon - 4 years ago
According to S&P Float Adjustment Methodology:

In cases where holdings in a group exceed 10% of the outstanding shares of a
company, the holdings of that group will be excluded from the float-adjusted count of
shares to be used in index calculations.

The "groups" they are talking about include current and former officers and directors as well as Foundations. As I understand it - and I may be wrong here - this means shares given by Buffett to the Gates Foundation wouldn't change float in S&P's eyes until Gates Foundation sells shares.

You can read the whole document if you google "S&P Float Adjustment Methodology" and click on the PDF.
crafool
Crafool - 4 years ago
ghg777, Thank you for the info. on S&P!

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