Berkshire Hathaway Inc.
is trading at more than $ 421,000 per Class A share and the market is optimistic. This is a problem.
The price has risen so high that it has almost reached the maximum number that can be stored in a common way exchange computers process numbers.
On Tuesday, Nasdaq Inc.
temporarily suspended broadcasting of Berkshire Class A stock prices for several popular data issues. Such feeds provide real-time price updates for a number of online brokerage and financial websites.
Nasdaq computers can count so high just because of the compact digital format they use to communicate prices. The largest number they can handle is $ 429,496.7295. Nasdaq is in a hurry to complete the upgrade later this month, which will solve the problem.
This is the stock version of the Y2K error. And it’s becoming an increasingly urgent issue as Warren Buffett’s shares have risen more than 20 percent this year, driven by the growing market and return on profitability since the fall of the Covid-19 pandemic in 2020.
Here’s the problem: Nasdaq and some other market operators record stock prices in a compact computer format that uses 32 bits or ones and zeros. The largest possible number is from two to 32 degrees minus one, or 4,294,967,295. Stock prices are often stored using four decimal places, so the highest possible price is $ 429,496.7295. .
No other stock is close to the stratospheric price levels of the Berkshire Class A, so it’s understandable why the engineers behind the Nasdaq and IEX systems chose the number format, which programmers call a four-byte unsigned integer.
U.S. stocks with the second-highest share price, home builder NVR Inc., traded just over $ 5,100 a share. Using compact formats that take up less memory can make software more efficient, a high priority in the world of e-commerce.
At the heart of the problem is Mr Buffett’s long-standing refusal to separate shares from Class A shares in Berkshire. The 90-year-old billionaire signed friends’ birthday cards with the message “Let’s live until Berkshire splits”, according to Fortune magazine. When pressured on the issue, he told shareholders that the lower price would lead to shares of unclaimed short-term investors.
“I know that if we had something that was much easier for anyone with $ 500 to buy, we would get an awful lot of people to buy it who had no idea what they were doing,” he told investors at the Annual Berkshire meeting in 1995
Since then, Berkshire has introduced Class B shares with a lower price point, expanding the company’s investment base. And many brokers are already offering partial trading, allowing investors to buy small pieces of Berkshire with just a few spare dollars.
However, Mr Buffett insists on not dividing the shares in Berkshire Class A.
Berkshire did not respond to a request for comment.
In a signal to customers on Monday, Nasdaq said it would complete the upgrade of its data warehouses on May 17 to allow stock prices above $ 429,496.7295. Until then, however, the stock exchange said it would temporarily suspend the publication of the price of each share, which exceeds 98% of the threshold.
This happened on Tuesday, when shares of Berkshire Class A closed at $ 421,420.00. A Nasdaq spokeswoman confirmed that the shares had virtually disappeared from the affected data issues, including Nasdaq Last Sale and Nasdaq Basic.
These issues are used by brokers such as Robinhood and Webull Financial LLC, according to the brokers’ websites, as well as some online financial news and data providers. This could potentially cause hiccups for investors who monitor Berkshire Class A prices if brokers do not have a backup data source. A Robinhood spokesman said mediation was not affected. Webbel declined to comment.
“Data integrity is paramount for the Nasdaq,” said a spokesman for the New York-based exchange operator, calling the move a temporary measure. A spokesman for the New York Stock Exchange, where Berkshire is listed and which handles much of the company’s Class A stock trading, said the NYSE systems would not be affected by the problem.
Decades ago, it was unusual for each stock to trade more than $ 100 per share. But since then, many CEOs have followed Mr Buffett’s example by refusing to split their shares, and today the club of companies with stock prices above $ 1,000 includes Alphabet Inc.,
and Chipotle Mexican Grill Inc.
This has caused confusion among some stock market observers, who say the market works better when stock prices are not as high.
James Angel, a professor of finance at Georgetown University who has studied the issue, says such increased stock prices lead to higher trading costs for investors. Berkshire’s huge stock price has now necessitated a time-consuming overhaul of stock exchange systems, he added.
“This is just one of the many problems that Berkshire poses to many others by refusing to split shares,” Mr Angel said.
Still, the professor quickly emphasized his respect for Berkshire’s longtime CEO. “I’m a big fan of Warren Buffett,” Mr Angel said. “I used to quote him at least twice a day. But this is an area where I do not agree with him. “
Write to Alexander Osipovich at email@example.com
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8