By Alexander Osipovich
Berkshire Hathaway Inc. is trading at more than $421,000 per
Class A share, and the market is optimistic. That's a problem.
The price has grown so high, it has nearly hit the maximum
number that can be stored in one common way exchange computers
handle digits.
On Tuesday, Nasdaq Inc. temporarily suspended broadcasting
prices for Class A shares of Berkshire over several popular data
feeds. Such feeds provide real-time price updates for a number of
online brokerages and finance websites.
Nasdaq's computers can only count so high because of the compact
digital format they use for communicating prices. The biggest
number they can handle is $429,496.7295. Nasdaq is rushing to
finish an upgrade later this month that would fix the problem.
It isn't just Nasdaq. Another exchange operator, IEX Group Inc.,
said in March that it would stop accepting investors' orders in
Class A shares of Berkshire Hathaway "due to an internal price
limitation within the trading system."
It's the stock-market version of the Y2K bug. And it's becoming
an increasingly urgent issue as shares of Warren Buffett's company
have risen more than 20% this year, buoyed by a rising market and a
return to profitability after fallout from the Covid-19 pandemic in
2020.
Here's the trouble: Nasdaq and some other market operators
record stock prices in a compact computer format that uses 32 bits,
or ones and zeros. The biggest number possible 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 is anywhere near Berkshire Class A's
stratospheric price levels, so it is understandable why the
engineers behind Nasdaq's and IEX's systems chose the number
format, which programmers call a four-byte unsigned integer.
The U.S. stock with the second-highest share price, home builder
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 decadeslong refusal
to execute a stock split of Berkshire's Class A shares. The
90-year-old billionaire has signed birthday cards to friends with
the message, "May you live until Berkshire splits," according to
Fortune magazine. When pressed on the issue, he has told
shareholders that a lower price would bring unsophisticated
short-term investors into the stock.
"I know that if we had something that it was a lot easier for
anybody with $500 to buy, that we would get an awful lot of people
buying it who didn't have the faintest idea what they were doing,"
he told investors at Berkshire's annual meeting in 1995.
Since then, Berkshire has introduced Class B shares with a lower
price point, broadening the company's investor base. And many
brokers now offer fractional trading, allowing investors with just
a few spare dollars to purchase tiny slices of Berkshire.
Still, Mr. Buffett has insisted on not splitting Berkshire Class
A shares.
Berkshire didn't respond to a request for comment.
In an alert to clients on Monday, Nasdaq said it would finish an
upgrade of its data feeds on May 17 to allow stock prices greater
than $429,496.7295. Until then, however, the exchange said it would
temporarily suspend publishing the price of any stock that exceeds
98% of the threshold.
That happened on Tuesday, when Berkshire Class A shares closed
at $421,420.00. A Nasdaq spokeswoman confirmed that the stock had
effectively disappeared from the affected data feeds, including
Nasdaq Last Sale and Nasdaq Basic.
Those feeds 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. Potentially, that could
cause hiccups for investors who monitor Berkshire Class A prices if
the brokers don't have a backup source of data available. A
Robinhood spokesman said the brokerage wasn't affected. Webull
declined to comment.
"Data integrity is of utmost importance at Nasdaq," a
spokeswoman for the New York-based exchange operator said, calling
the move a temporary measure.
Decades ago, it was unusual for any stock to trade above $100 a
share. But since then, many executives have followed Mr. Buffett's
lead in refusing to split their stocks, and nowadays the club of
companies with share prices above $1,000 includes Alphabet Inc.,
Amazon.com Inc. and Chipotle Mexican Grill Inc. That has prompted
consternation among some stock-market observers who say the market
works better when share prices aren't so high.
James Angel, a finance professor at Georgetown University who
has studied the issue, says such elevated share prices result in
higher trading costs for investors. Now, Berkshire's outsize share
price has forced a time-consuming overhaul of stock-market systems,
he adds.
"This is but one of the many problems that Berkshire inflicts
upon many others by their refusal to split the stock," Mr. Angel
said.
Still, the professor is quick to stress his respect for
Berkshire's longtime chief executive. "I'm a big fan of Warren
Buffett," Mr. Angel said. "I used to quote him at least twice a
day. But this is one area where I disagree with him."
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
May 04, 2021 19:04 ET (23:04 GMT)
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