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Fairfax, Apple could benefit by splitting shares like Berkshire


Alekbaylee
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The day Prem splits the shares, I'm selling.  It sends the wrong message to investors regarding market price and intrinsic value, and really you end up diluting the shareholder base. 

 

In Berkshire's case, the split may have been a good idea (not because of the small Burlington shareholders), but because the Gates Foundation is keeping the stock artifically low with regular selling.  The added liquidity from the shares issued in the Burlington deal, along with the share split, should allow BRK to trade a little closer to intrinsic value and move a bit more freely.  Cheers!   

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The day Prem splits the shares, I'm selling.  It sends the wrong message to investors regarding market price and intrinsic value, and really you end up diluting the shareholder base. 

 

In Berkshire's case, the split may have been a good idea (not because of the small Burlington shareholders), but because the Gates Foundation is keeping the stock artifically low with regular selling.  The added liquidity from the shares issued in the Burlington deal, along with the share split, should allow BRK to trade a little closer to intrinsic value and move a bit more freely.  Cheers!   

 

To be honest I really can't wrap my head around the arguments not to split, which doesn't mean they aren't there. It just seems that all the arguments for it not to be done seem to be emotional arguments and have no real financial merit for the company or the shareholder. We've all seen with Fairfax that it doesn't stop any of the things that go on with all the stocks on the market. It just seems that psychologically it would be easier for the market to move a stock from 32 to 50 than from 320 to 500. There may be studies that refute that, but I also feel we are in a different era now with easy access to electronic trading and discount trading fees. Open to pillaring now. ;D

 

Dan

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The day Prem splits the shares, I'm selling.  It sends the wrong message to investors regarding market price and intrinsic value, and really you end up diluting the shareholder base. 

 

 

Same here. The day Fairfax intends to split its shares, I'm gone.

 

 

It just seems that psychologically it would be easier for the market to move a stock from 32 to 50 than from 320 to 500.

 

BRK.A proves that a stock with a big price tag is able to move up and that a long-term orientation of a business owner can be rewarding, even though it is necessary to withstand "easy and quick" short-term approaches to gain a profit. Maybe its just me, but I intend to keep Fairfax as long as Prem intends to constantly improve book value, enforce an ownership mentality, delivers a stellar investment performance, keeps its management integrity and doesn't become a member of the Wallstreet Lemmings, chasing after the crowd or a new fancy trend.

 

Cheers!

“We are long-term investors and our company is a long-term investment. Short term fluctuations are market driven and not value driven. We began in 1985, 24 years ago, with US$30 million in assets and about US$7.5 million of shareholders’ capital. Today, coincidentally, we have US$30 billion in assets and US$7.5 billion in shareholders’ equity. That’s up 1,000 times. Our per share book value has grown from US$1.50 to US$372. Our stock price has gone from C$3.25 to between C$375 and $390 a share. These are all long-term results.”

 

“We are thankful for our track record. More recently our book value in 2006 was US$150 a share and now, as of end of September, it is US$372 a share, more than double and the stock price has naturally followed suit. Over time the book value and the stock price tend to go together.”- Prem Watsa

 

http://network.nationalpost.com/np/blogs/francis/archive/2009/10/31/345839.aspx#ixzz0eyFENsSP

 

 

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I hate to disagree with some members of this board because i have the utmost respect for their opinions, but the "split shares and I'm gone" concept seems to be a bit of an elitist position. Not everyone is a fund manager or can afford to own thousands of shares.

 

There would seem to be very little downside in splitting shares from what I can see. From past experience it seems a given that when a stock splits, liquidity on the market improves, the shares become more available to the smaller investor and the price increases. There might also be some other spin off from having a wider base of shareholders. Now when I shop around for personal or company insurance I make it a point to consider FFH as an insurer.  Why would any company who deals with the public want to keep a low profile?

 

When investors complain about FFH shares selling for a lower ratio to book than some competitors, might that not that have something to do with its low profile? The more shareholders there are, the more people who will do their research and recognize the integrity of this company and the farsighted investments they make. That in itself will tend to snowball and help keep prices in the range where they should be.

 

And if a stock split improves prices - what's wrong with that, isn't that why we invested in the first place? I often read where FFH shareholders say they don't really care about the short term pricing, but in my opinion, the higher the average price, the better because who knows when one might want to sell for any number of good reasons?

 

As a small investor, I know that I for one would own more of FFH if it was selling for a lower price.

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I hate to disagree with some members of this board because i have the utmost respect for their opinions, but the "split shares and I'm gone" concept seems to be a bit of an elitist position. Not everyone is a fund manager or can afford to own thousands of shares.

 

When I first started buying Berkshire B's 12 years ago, I was not a fund manager, but someone scrimping and saving to buy each share.  There were multiple options for me to put that capital elsewhere, where I could buy more shares for my money.  But after reading Buffett's letters, I realized it was nonsensical to do that.  Fairfax's shares today aren't out of the realm of even the smallest investor.  Twenty years from now, they may be at $2000/share or $3000/share, which is pretty much where the B's are today. 

 

To buy stocks like Berkshire or Fairfax, you have to grasp what their CEO's espouse and the culture they've developed.  You bring in a very specific group of investors...more knowledgeable about the right things and loyal to that culture.  Unfortunately, by splitting their shares, Berkshire is now going to bring in a less desireable group of shareholders...something they had already done once by bringing in the B's and splitting the A's.  More liquidity means a more diverse group of owners.  Some may prefer that because it reduces the gap between intrinsic value and market price, but I'm of another group that believes you sacrifice the quality of your shareholder base...and not by a little bit, but by alot!  Cheers!   

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Some may prefer that because it reduces the gap between intrinsic value and market price, but I'm of another group that believes you sacrifice the quality of your shareholder base...and not by a little bit, but by alot!  Cheers!

 

Well, I guess I'm between the two groups. I can buy a piece of a business for 0,10$ or 3000$, I doesn't matter that much. If I buy 2X 1/8 or 1 X 1/4 of a pizza, I still get 1/4 of the pizza anyway. Is the pizza taste good, made with good ingredients and sell for an appropriate price questions matter far much.

 

That being said, having a higher price per share is per se a good filter because people who don't understand the "doesn't matter much how many slices a pizza has" concept don't buy them, but to me it becomes inappropriate when the price per share is too high so some young, but potential long term and business oriented shareholders can't afford them.

 

 

 

 

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So Sanjeev, what you are suggesting is that you would prefer a lower share price to ensure a better quality of shareholders. But isn’t that rather counterproductive? I mean the value of the company is generally the product of management - not the group intelligence of shareholders. Further, in watching the share price of Fairfax bounce around over the past few years doesn’t give one lot of confidence in the ability of the present shareholders to put a proper or consistent value on this company. While the value has been consistently increasing, the share price charts looks like my dog’s teeth. 

 

Let’s say splitting shares eventually leads to an average 5-10% increase in share value, don’t you think that would outweigh the fact that you would have a lesser quality of shareholders? And as far as volatility is concerned, this company can move 10% in a couple of days and all too frequently does.

 

Hypothetically, lets say ownership of FFH was limited to a few dozen very knowledgeable shareholders, are you sure that the share price would rise quicker over time than if they were more widely held? What if if liquidity was lowered to the point where there was such a limited market there was no one to sell the shares to?

 

The expertise of many members of this board is most impressive, but there is one rule of business that rarely fails. Any commodity, no matter what it’s value is only worth what someone will pay for it. When you limit your market, you limit the competition and thereby what people are willing to pay. Long term or short term, isn’t the reason any of us buy shares in any company is to make money? (Forgive me if I sound like Kevin O’Leary) 

 

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Let’s say splitting shares eventually leads to an average 5-10% increase in share value, don’t you think that would outweigh the fact that you would have a lesser quality of shareholders? And as far as volatility is concerned, this company can move 10% in a couple of days and all too frequently does.

 

Well, here's the thing.  Prem figures that he can grow book value by 15% per year.  Apply the rule of 72.  If Prem is right, then this thing is a double every 5 years.  In that context, who cares about a temporary 5-10% pop from splitting the shares?

 

With FFH, we must get used to volatility.  It is both frustrating AND it's an opportunity.  Over the years, I cannot tell you how much money I've made from people who have given up on ORH and FFH at absolutely silly prices.  It's been great for me!

 

At one point, Prem was completely focussed on growing shareholder value (ie, IV).  There were no quarterly conference calls, and he did not give a sh*t about what analysts thought.  That was roughly 10 years ago.  Reality has hit home, and he is more of a salesperson than in the past.  But I think that he was correctly aligned in the beginning, even if those days are now past.  We need his brainpower, not salesmanship.  The salesmanship will support this beast in the short term, but his brain, his composure and humility is what pushes book value forward over the long-term.  And over the long-term, Prem costs me a hell of a lot in capital gains taxes...

 

Screw the NYSE!

 

SJ

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"who cares about a temporary 5-10% pop from splitting the shares"

 

I tend to disagree that the 5-10% increase would be temporary. That hasn't been my experience with other shares that have split. In fact I believe that the long term effect would tend to keep share price a little more in line with book value.

 

On the other hand I definitely agree that there is money to be made with the volatility of FFH. I have been so tempted to sell every time FFH takes a big jump, but always resist in the fear that I may get left behind if it doesn't drop back. Guess I'm going to have to suck it up and start playing that game. But again as a small investor it's not so easy with the share price where it is.

 

Condolences over your capital gains problems...  ;D

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On the other hand I definitely agree that there is money to be made with the volatility of FFH. I have been so tempted to sell every time FFH takes a big jump, but always resist in the fear that I may get left behind if it doesn't drop back. Guess I'm going to have to suck it up and start playing that game. But again as a small investor it's not so easy with the share price where it is.

 

 

eric, Have you had problems getting odd lot orders (less that 100 shares) filled?

 

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The reality is that we'd all be a lot better off if the shares traded at about the price of Sched-A banks & the traditional 'widows & orphans' stocks. TSX index membership, broader institutional ownership, greater liquidity, higher float, etc, etc.

 

But it also means change. No more multiple voting stock, less influential control blocks, less family & more public ownership, etc. The baby's growing up & its control structures need to grow with it.

 

An eventual share split is probably enevitable (even BRK split), but in all likelihood a good decade away yet.

 

SD

 

 

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On the other hand I definitely agree that there is money to be made with the volatility of FFH. I have been so tempted to sell every time FFH takes a big jump, but always resist in the fear that I may get left behind if it doesn't drop back. Guess I'm going to have to suck it up and start playing that game. But again as a small investor it's not so easy with the share price where it is.

 

 

eric, Have you had problems getting odd lot orders (less that 100 shares) filled?

 

 

I'm not speaking for Eric, but I can only get odd lots filled for the FRFHF shares. There isn't much volume in the stock as of yet.

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