On Mon, Jun 02, 2003 at 12:36:24AM -0400, Bryon Daly wrote:
> >On Sun, Jun 01, 2003 at 11:42:20AM -0500, Julia Thompson wrote:
> >
> >> Brokers prefer to work with bigger blocks.
>
> There seems to be some thought that a certain price range can make a
> stock more attractive and liquid. I believe that's why you frequently
> see stock splits when a stock price creeps up into the 100's.
I've heard that as well. But the original statement (quoted above) was
that "brokers prefer to work with bigger blocks". Maybe Julia meant to
say that "brokers prefer lower-priced shares of stock so that stocks are
more liquid and there are more transactions so the brokers can earn more
transaction fees"?
Incidentally, although the brokers may like small transactions, in most
cases it is foolish for an individual to trade less than about $1,000 at
a time in stocks (and that assumes a discount broker). Less than that
and transaction fees make up too large a chunk of your trade. Anyone who
expects to regularly make investment transactions of less than $1,000
would be better off in no-transaction-fee, no-load mutual funds.
> heard it, stocks in the $30-80 range are thought to have more "upward"
> pressure than pricier stocks. (Obviously, any truth to this is mostly
> due to the perceptions of individual stock buyers that pricer stocks
> are "too expensive").
"Behavioral finance"
> On the other end, I've also heard that Warren Buffet's refusal to
> split the Berkshire Hathaway stock is snobbery intended to "keep
> the riffraff out", by making the stock unaffordable for all but the
> richest investors.
Not exactly, although he does what to discourage a certain type of
person. The B shares trade at about $2400, so you don't have to be so
rich to buy 1 or 2 shares. But let Buffett explain himself:
"We often are asked why Berkshire does not split its stock. The
assumption behind this question usually appears to be that a split
would be a pro-shareholder action. We disagree. Let me tell you
why.
One of our goals is to have Berkshire Hathaway stock sell at a
price rationally related to its intrinsic business value. (But note
"rationally related," not "identical": if well-regarded companies
are generally selling in the market at large discounts from value,
Berkshire might well be priced similarly.) The key to a rational
stock price is rational shareholders, both current and prospective.
If the holders of a company's stock and/or the prospective buyers
attracted to it are prone to make irrational or emotion-based
decisions, some pretty silly stock prices are going to
appear periodically. Manic-depressive personalities produce
manic-depressive valuations. Such aberrations may help us in buying
and selling the stocks of other companies. But we think it is in
both your interest and ours to minimize their occurrence in the
market for Berkshire."
....
In large part, however, we feel that high quality ownership
can be attracted and maintained if we consistently communicate
our business and ownership philosophy -- along with no other
conflicting messages -- and then let self selection follow its
course. For example, self selection will draw a far different crowd
to a musical event advertised as an opera than one advertised as a
rock concert -- even though anyone can buy a ticket to either.
Through our policies and communications -- our "advertisements" --
we try to attract investors who will understand our operations,
attitudes and expectations. (And, fully as important, we try to
dissuade those who won't.) We want those who think of themselves
as business owners and invest in companies with the intention of
staying a long time. And, we want those who keep their eyes focused
on business results, not market prices."
So, I wouldn't call Buffett's reasons exactly "snobbery", and he doesn't
want to exclude non-rich people, but he does want to discourage a
certain type of person. He wants to keep out speculators or short-term
holders of the stock. Basically, he figures that if Berkshire is traded
mostly by long-term "rational" investors, it will be less volatile,
which will be good for the shareholders who might need to sell urgently
and unexpectedly some day. He goes on to say that any investor who would
prefer nine $10 bills to one $100 bill is the type that he wants to
discourage.
--
"Erik Reuter" <[EMAIL PROTECTED]> http://www.erikreuter.net/
_______________________________________________
http://www.mccmedia.com/mailman/listinfo/brin-l
