ECON Bob Prechter: Bear Market Rally Is Over, Stocks Headed For New Lows

By Jonathan Stempel and Lilla Zuill

NEW YORK (Reuters) - If you always wanted to invest alongside Warren Buffett, but found it too expensive, you now have your chance.

Buffett's decision to conduct a 50-for-1 split of Class B shares of his Berkshire Hathaway Inc (BRKa.N) (BRKb.N) lowers the price of entry for ordinary investors who long found it prohibitively costly to buy the stock.

The split is one piece of Berkshire's $26 billion takeover of Burlington Northern Santa Fe Corp (BNI.N), and is intended to make it easier for shareholders of the railroad who want to swap their shares for Berkshire stock to do so.

Berkshire Class B shares closed Monday at $3,265. After a 50-for-1 split, they would cost just $65.30. Class A shares of Berkshire trade around 30 times the price of the Class B shares, or around $100,000, and are not being split. The split requires approval of Berkshire shareholders.

"I do think it will attract more investors," said Justin Fuller, author of the Buffettologist.com blog.

Buffett, 79, had never split Berkshire stock. The world's second-richest person reasoned that splits could attract speculators rather than the long-term investors he prefers for his Omaha, Nebraska-based insurance and investment company.

In a shareholder letter in March 1984, when Berkshire Class A shares traded around $1,300 and 12 years before the B shares were created, Buffett said a split would "attract an entering class of buyers inferior to the exiting class of sellers."

His tune has changed little. "I'm not big on stock splits," Buffett told CNBC television on Tuesday. He said Tuesday's split, however, will let small Burlington shareholders as well as larger ones participate in a tax-free stock swap.

The price of Berkshire Class B shares is roughly six times that of Google Inc (GOOG.O), the highest-priced stock in the Standard & Poor's 500 stock index .SPX. Berkshire is the largest U.S.-based company by market value not in the index.

Buffett believes stock splits result in "no intrinsic increase in the value of anything," said Frank Betz, a principal at Carret/Zane Capital Management LLP in Warren, New Jersey. "But the market belies that."

NO RIFF-RAFF

Berkshire created Class B shares in 1996 to thwart unit trusts "purporting to be low-priced 'clones' of Berkshire" by chopping up the Class A shares in pieces to be sold, Buffett said in his shareholder letter that year.

"Charlie and I do not care whether our shareholders own Berkshire in large or small amounts," Buffett wrote, referring to Berkshire Vice Chairman Charlie Munger.

"What we wish for are shareholders of any size who are knowledgeable about our operations, share our objectives and long-term perspective, and are aware of our limitations, most particularly those imposed by our large capital base," he added.

One question posed by the stock split is the future of Berkshire's annual shareholder gathering, which Buffett calls "Woodstock for Capitalists," usually the first weekend in May.

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Dozdoats said:

If you always wanted to invest alongside Warren Buffett, but found it too expensive, you now have your chance.

Globalist scum WB should hold his breath till he gets any of my money.

dd

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MamaDel said:

"He thinks it'll be another 5 or so years before we turn the corner but the good news is when we do, it'll be the buying opportunity of a lifetime."

I think it should have said:

He thinks it'll be another 5 or so years before we turn the corner but the good news is IF we do, it'll be the buying opportunity of a lifetime.

MamaDel

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Richard said:

The trouble is now any upturn will be blunted by offshore outsourcing, immigration, manufacturing going to cheap labour countries, the cost of Govt programs including ObamaCare, th greatly increased national debt to pay off the banks' bad debt, measures to reduce CO2 etc etc all in all pointing to a very slow recovery.

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While people are saying, "Peace and safety," destruction will come on them suddenly, as labor pains on a pregnant woman, and they will not escape. [1 Thessalonians 5:3]

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What this represents is that mass mood is about as insanely optimistic relative to historical reality as is possible at the current juncture. An upset of unprecedented scale from the psychologically important Dow 10,000 level is likely to unfold. What shape this takes is known only to God, but I do believe it will be of biblical significance.
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