Tweet

“Riding the Rails on Other Peoples Money”

Guest post by: Pia Lord

Article Overview: Warren Buffett Bershire Hathaway Owner Related Business Principle # 8. Handing your money over to Warren Buffett and his crew ought to be a safe bet. Using other peoples money in a wise and judicious way is one of the pledges that Berkshire Hathaway vows.

“Riding the Rails on Other Peoples Money”



"A managerial checklist will not be fulfilled at shareholder expense. We will not diversify by purchasing entire businesses at control prices that ignore long-term economic consequences to our shareholders. We will only do with your money what we would do with our own, weighing fully the values you can obtain by diversifying your own portfolios through direct purchases in the stock market." (Berkshire Hathaway Annual Report)

These are the words written in the Berkshire Hathaway Annual Report. Would you agree that Berkshire Hathaway is true to this principle? Lets take a look. In this most recent up and coming purchase of Burlington Northern Santa Fe Railroad, Berkshire Hathaway is calling a shareholder vote for a 50-1 split of the B shares. Why are the A shares not being split as well? Which investors are they most concerned about, the A share investors or the B share investors?

Say you own some B shares of the stock. Would you be in agreement with the stock split? Well, if you owned 1 share of the B stock, you would then, after the split have 50 shares.

What could be wrong with that? A Berkshire Hathaway B share currently sells for about $3300. After the split, the per share value would be about $ 60. This is a significant reduction in the per share value of the stock. Could one liken this to owning gold and then going through a conversion and coming out with owning silver or even nickel? Although the shares would be overall the same total market value since they are split 50 for 1, might there not be a significant reduction in the value of these B Shares over time since there will be so many more of them flooded out onto the market? What if the stock price of these shares falls further?

Why does Berkshire Hathaway not just pay cash for the shares of Burlington Northern Santa Fe? Or why not also split the A shares to accomplish the same thing? The reason for the split is to accomplish paying the investors of the Santa Fe Burlington Northern Company in stock rather than in cash.

On the other hand, the ratio is a set value of the relationship of the A shares to the B shares. So unless the A shares take another huge tumble, the B shares ought to be relatively stable. Another positive reason for the outcome of the split could be that when the B shares price readjusts, or goes up again, the new shares that existing stock holders now own will see tremendous or at least solid gains, should the value of the Berkshire Hathaway group of stocks grow further in value.

When T Rowe Price split in 2006 it stock price was revalued to around $26 per share. Now in 2010, four years later, it is back at the pre-split dollar value of about $57 per share. It is also now being announced as a buy for investors.

The per share price of the Berkshire Hathaway B stock could very well take four years or much longer to regain the $3300 level mark, if it ever does. Since the revaluing of the ratio may not permit the stock to ever gain such $ value. Will our gold standard stock be a thing of the past, if the A shares are not your ticket to ride?

So who is really benefiting from the proposed stock split on January 20, 2010 at the share holder meeting in Omaha Nebraska? Time will tell. At least as far as the railroad industry, the US economy and the Oracle of Omaha are concerned, things seem to be back on the right track. Whoo, Whoo ! All aboard!!

Related Articles
  Ruby on Rails developer provides with efficient web development services
  StartupWeekend: We need this event in Kenya
  Staying on Top
  Ride For the Brand
  A Lesson on Two Wheels
  Focusing on the Wrong Thing
  The Powerful Minute - Take Action
  Entrepreneurs, Investors Alert For Berkshire Investment Opportunity
  Cash Flow for Real Estate Investors
  Joint Venture Success Depends on Analysis
  Smart Women Get Uncomfortable
  Do you know what you are Recommending?
  ••••••> SEO, Search Engine Optimization Tip of the Day: 4 Tips to Optimize JavaScript for Search Spiders
  The Art of Being with Fear: Never Be Stopped By Fear Again
  Nature Helps ADHD Symptoms
  Lessons From Skyline Drive
  GET IN ON THE NEWEST FAD AND MAKE MONEY
  A few of THE biggest mistakes made by new businesses
  Keith Springer Wealth Manger in Sacramento CA Quoted In CNN Money on European Banks
  Zombies or Talking Heads: Matching the Message to the Trainee

Article Tags: berkshire hathaway, business education, business principle, money, pledges, riding the rails, safe bet, warren buffett
Referred by: http://jaykubassek.com



Related Forum Posts
Re: Which would you start: a Blog or Online Community? - It is a difficult decision to make. Lets start it this way - What are you more interested in? Money? or Friends? or Both? If its purely Money, then Blog might be an appropriate answer. But consider this - It will be people (visitors) that will bring traffic to your blog and then Money will follow. This will be possible after a time and during this time it will be your friends who will be the starters. If you are looking for friends only, then its true that not many will be interested in knowing how you have beaten them in the game or the other way round. So it will be preferable to have a Forum where they can share ideas with you and others. But you can share your insider knowledge with them and invite comments from your Blog. You can also put up information on what others (including your friends) don't know about Tennis. The blog you create can provide News, Inside Information and also Techniques that can be used by the new entrants in the world of Tennis.
Making Money in 2011 - Hello forum members! As we draw closer to the new year I thought it would be appropriate to change the title of our forum category "Making Money in 2010" to "Making Money in 2011" - I'm looking forward to some interesting discussions and wish everyone a prosperous New Year!
QuickBooks vs. Microsoft Money vs....? - I have always used Microsoft Money to run my business - accounting, invoicing, etc. It came with my computer when I got it and integrated well with my online banking system so everything is a breeze. It only takes 30-60 minutes every quarter to do the bookkeeping (keep in mind that I have a very simple business - no inventory, very little invoicing, I do all my payments by credit card, etc). Is QuickBooks or Money the best accounting tool for small business owners? Or is there something even better?
Re: What or Who Sparks Your Business Interest - It's interesting to see what the different motivations are by Age Category. I've noticed this around me: 20 to 29yr olds: Motivator: Money 30 to 39yr olds: Motivator: Success/Ambition 40 to 49yr olds: Motivator: Family comes first 50 to 59yr olds: Motivator: Leaving a legacy i've only gone that far in my analysis. Of course this is a braid generalization but I find that it helps direct my marketing to individuals in different age brackets. The product/service can be the same but the Marketing message (Benefit Statement) to a 20 year will revolve around "Money" vs. a 30-something would be on their "Self Image"
$$$ - Money making is a talent. If used properly it can achieve desired results.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Clues to Increase Sales -- Listen to the Buyer

Here's a great ROI

Common Sense Stress Management

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.