You may or may not know that legendary investor Warren Buffett has a stake in Amazon (AMZN -1.64%) through his holding company Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%). For his own company, he has said on more than one occasion that he's not interested in splitting its stock. Indeed, the price of one share of Berkshire Hathaway stock is a record $532,000 as of this writing, the most expensive stock on the market in terms of absolute value by far. Those are class A shares, which have never split. The company also has class B shares, which were issued in 1995 and cost about $345 as of this writing.
Amazon recently announced a 20-for-1 stock split to take effect in June. What does the investing guru think about stock splits, and does it apply to Amazon's recent stock split announcement?
Image source: Getty Images.
Why Buffett doesn't like stock splits
Buffett has made several comments over the years that explain his views on stock splits in general. The upshot: He's not into them. Here's how he explained it in 1995:
We want to attract shareholders who are as investment-oriented as we can possibly obtain, with as long-term horizons. 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, but heard the name bandied around in some way. ...
We are almost certain we would get a shareholder base that would not have the level of sophistication and the synchronization of objectives with us that we have now. And what we really don't need in Berkshire stock is more demand. ... We don't care to have it sell higher, except as intrinsic value grows.
And I don't think there's any question, but that we would get a worse result in that aspect if we introduce splits in, because then people would think about other possibilities that might give the stock a temporary boost.
Buffett is a fan of value investing and has popularized the strategy. There are several layers of it, beginning with finding companies whose shares are undervalued relative to the company's intrinsic value. The theory is that the price will rise to match the intrinsic value, and that underlies the objection to stock splits. Buffett expects price changes to match value, and he isn't into stunts to move the price for any other reason.
However, he did agree to issue class B shares in 1996 to allow a wider group of people to buy shares. Class B shares trade at $352 as of this writing, and they have gained 345% over the past 10 years, just on par with Berkshire Hathaway class A shares.
That's because the class B shares were set up to move in tandem with the class A shares, preventing an arbitrage situation in which someone could profit by trading one class for the other.
Does it apply to Amazon?
Buffett, or likely one of his fund managers, bought Amazon stock in 2019 when shares cost about $1,850. That turned out to be a providential time to buy, and the price has appreciated dramatically since the pandemic arrived not too long after the purchase.
This isn't the first time a company in the Berkshire Hathaway empire has split its stock. Apple has already done so more than once. Buffett hasn't commented on either Apple's or Amazon's stock splits. He did, however, make a comment about his decision to sell Apple stock in 2020, saying that it was probably a mistake. His interest in the companies he owns is limited to what they offer his shareholders, split or not.
Historically, stock splits have been good for shareholders, although perhaps for all the reasons Buffett says he doesn't like them. Companies' shares tends to rise after a split because more investors have easier access, and as more people buy in, the price will go up. As right as Buffett may be about stock splits, they do benefit shareholders over time by unlocking greater value.
Amazon said in its stock split filing that the split will go through on June 3. That still gives investors plenty of time to buy shares before the split and benefit from the likely appreciation of the stock afterwards. In the meantime, Amazon's stock price has slightly decreased over the past few weeks, giving investors an even more compelling reason to buy now.
