Berkshire Hathaway Inc.
is trading at over $ 421,000 per Class A share and the market is bullish. It is a problem.
The price has risen so much that it has almost reached the maximum number that can be stored in a common way that exchange computers handle the numbers.
Tuesday, Nasdaq Inc.
temporarily suspended the broadcast prices of Berkshire Class A shares on several popular data feeds. These feeds provide real-time price updates for a number of online brokers and funding websites.
Nasdaq computers can only count so high because of the compact digital format they use to communicate prices. The highest number they can handle is $ 429,496.7295. The Nasdaq is rushing to complete an upgrade later this month that would fix the issue.
It’s not just the Nasdaq. Another exchange trader, IEX Group Inc., said in March it would stop accepting orders from investors for Berkshire Hathaway Class A shares “due to an internal price cap on the trading system. “.
This is the stock version of the Y2K bug. And it is becoming an increasingly urgent problem as shares in Warren Buffett’s company have risen more than 20% this year, supported by a rising market and a return to profitability after the fallout from the Covid-19 pandemic in 2020.
Here’s the problem: The Nasdaq and some other market participants record stock prices in a compact computer format that uses 32-bit, or ones and zeros. The highest possible number is two to the 32nd power minus one, or 4,294,967,295. Stock prices are frequently stored using four decimal places, so the highest possible price is $ 429,496.7295. .
No other stock comes close to the stratospheric Berkshire Class A price points, so it’s understandable that the engineers behind the Nasdaq and IEX systems chose the number format, which programmers call a four-byte unsigned integer.
The second-highest US stock, homebuilder NVR Inc., is trading just above $ 5,100 a share. Using compact formats that take up less memory can make software more efficient, a high priority in the world of electronic stock trading.
At the root of the problem is Mr. Buffett’s decades-long refusal to execute a Berkshire Class A stock split. The 90-year-old billionaire signed birthday cards to friends with the message “May you live until Berkshire part ways,” according to Fortune magazine. When pressed on the issue, he told shareholders that a lower price would attract unsophisticated short-term investors into the stock.
“I know if we had something that was a lot easier for anyone with $ 500 to buy, we would get a huge number of people buying it without having a clue what they were doing,” he said. he told investors at Berkshire’s Annual Meeting in 1995.
Since then, Berkshire has introduced Class B shares at a lower price, expanding the company’s investor base. And many brokers now offer split trades, allowing investors with just a few dollars in reserve to buy tiny slices of Berkshire.
Still, Mr Buffett insisted not to split Berkshire’s Class A shares.
Berkshire did not respond to a request for comment.
In a customer alert on Monday, the Nasdaq said it would complete an upgrade to its data feeds on May 17 to allow stock prices above $ 429,496.7295. Until then, however, the exchange has said it will temporarily suspend publication of the price of any stock above 98% of the threshold.
This happened on Tuesday when Berkshire Class A shares closed at $ 421,420.00. A Nasdaq spokeswoman confirmed that the stock had indeed disappeared from affected data streams, including Nasdaq Last Sale and Nasdaq Basic.
These feeds are used by brokers such as Robinhood and Webull Financial LLC, according to brokerage websites, as well as some online financial news and data providers. Potentially, this could cause hiccups for investors watching Berkshire Class A prices if brokers do not have a back-up data source. A Robinhood spokesperson said the brokerage was unaffected. Webull declined to comment.
“Data integrity is of the utmost importance to Nasdaq,” said a spokeswoman for the New York-based exchange operator, calling the move a temporary measure.
Decades ago, it was unusual for a stock to trade above $ 100 a share. But since then, many executives have followed Mr. Buffett’s lead in refusing to divide their shares, and these days the club of companies with stock prices over $ 1,000 includes Alphabet. Inc.,
and Mexican chipotle grill Inc.
This has sparked consternation among some stock watchers who say the market works best when stock prices aren’t that high.
James Angel, a finance professor at Georgetown University who has studied the issue, says these high stock prices mean higher trading costs for investors. Now, Berkshire’s outsized share price has forced a painstaking overhaul of stock systems, he adds.
“This is just one of the many problems Berkshire inflicts on many others by refusing to divide the stock,” Mr. Angel said.
Still, the professor is quick to underline his respect for Berkshire’s longtime chief executive. “I am a huge fan of Warren Buffett,” Mr. Angel said. “I used to quote it at least twice a day. But this is an area on which I do not agree with him.
Write to Alexander Osipovich at [email protected]
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