This week one of the more significant occurrences on Wall Street was the announcement of the approval by the board of directors of Berkshire Hathaway to split the B shares; 50 for 1.  As many investors are aware, Warren Buffet is well known for his financial genius, and is the chairman and CEO of Berkshire Hathaway. Along with the announcement of the split was that of the complete purchase of Burlington Northern Santa Fe Corporation (BNI), a rail company, for $100/share outstanding.

Warren Buffet’s genius in investing has led to his great following.  One of the wealthiest men worldwide, he has had numerous interviews, and many books and articles focused on his investing structure.  Among the most known tenants he holds is that value is what matters in a company.  Integrity, intelligence, and energy are what matter in people, and great people make great companies.  He studies a company thoroughly before investing, reviewing balance sheets, and becoming familiar with key personnel.  He believes in putting a lot of eggs in one basket, so to say, rather than spreading yourself thin, as investing in mutual funds does.  Perhaps most importantly, he believes in long-term investments.

During the last few decades, there was a decline in railroads in America.  While other countries were still building their infrastructure through rail, we were busy selling some lines for scrap.  During the recent economic downtown, many realized the inherent sustainability of railroads over trucks, and they began to make a comeback.  One train can move more than 150 trucks.  Trains have over three times the efficiency of trucks, and thereby, produce many less pollutants and burn less fossil fuels.  Utilizing rail leads to less crowded highways, which also saves communities on road repairs.  New freight cars are significantly cheaper than new trucks as well.  Rail moves commercial products, agricultural goods, waste, construction products including mineral materials and mined goods, military equipment, etc.  Railroads are already in place in most cities, and their private ownership can save on community burden.

So why do these two announcements coincide, and what do they mean to us?  When a company, such as BNI, is purchased, their stockholders are generally offered shares of the new company, a cash settlement, or some combination of the two.  Before the announcement that the board had approved the split of shares fifty for one, Brk-B was priced at approximately $3,300/share and BNI was priced at about $76/share.  Rather than force small investors to sell if they would get less than one share, lowering the price of a B share allows a closer trade-in value for the BNI share.    When (and if) this stock split is approved by the shareholders, it will also make Berkshire B shares more attainable to the typical investor.  While those that hold Berkshire Hathaway B before this happens will receive fifty shares for each share held, it should be interesting to see what happens, as being a Berkshire Hathaway stockholder becomes less of a restricted club.