Why Is Berkshire Hathaway (NYSE: BRK.A) Stock So Expensive?

One share of Berkshire Hathaway Inc. (NYSE: BRK.A) stock is so expensive it could buy a Tesla Motors Inc. (Nasdaq: TSLA) Model S, plus a Tiffany & Co. (NYSE: TIF) platinum diamond ring, with plenty of change to spare.

Shares of BRK.A opened July 17 at $214,800. That's not far from their all-time intraday high of $229,374 from Dec. 8, 2014.

Investing TipsOmaha-based Berkshire is by far the highest-priced stock on U.S. markets. According to FinViz, the second most expensive stock on U.S. exchanges is Seaboard Corp. (NYSEMKT: SEB) at just $3,630.

But Berkshire's market cap isn't overwhelmingly large at $348.11 billion. Apple Inc. (Nasdaq: AAPL) holds that crown with a $723.11 billion market cap.

When BRK.A shares eclipsed $200,000 for the first time in December 2014, talks swirled about the company splitting its stock.

Chief Executive Officer Warren Buffett, however, has long resisted any urging to split the shares.

In a stock split, a company increases the number of outstanding shares while lowering the price accordingly. Splits don't change anything fundamentally about a company's valuation. Yet a split makes shares more affordable, and thus more attractive, to retail investors.

Buffett has for many years argued that lower-priced shares would only stoke short-term, speculative trading in his company's stock.

"I don't want anybody buying Berkshire thinking that they can make a lot of money fast," Buffett told Alice Schroeder in a biography about the iconic investor titled "The Snowball." "They're not going to do it, in the first place. And some of them will blame themselves, and some of them will blame me. They'll all be disappointed. I don't want disappointed people. The idea of giving people crazy expectations has terrified me from the moment I first started selling stocks."

But that doesn't mean you necessarily have to shell out $200,000 for a piece of Berkshire Hathaway...

A Cheaper Alternative to BRK.A Shares

In somewhat of a compromise, Berkshire issued much cheaper Class B (NYSE: BRK.B) shares in 1996. The Class B shares were worth 1/30th of BRK.A shares when they debuted. They were launched to allow Buffett to outmaneuver fund managers aiming to set up mutual fund-like structures that sell slices of the company in smaller stakes.

In 2010, Buffett split the B shares 50-for-1. Following the split, they were added to the S&P 500 Index.

They currently trade near $144 each. When it comes to voting rights, the B shares have about 1/10,000th the power of Class A shares.

Investors hoping for a split of Class A shares after Buffett steps down are likely to be disappointed.

[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]

The so-called "Buffett culture" is expected to persist long after the legendary leader has left the company. That's based on the people he has put in place and the kind of investments BRK.A has made. Besides, Buffett has no plans of retiring anytime soon.

Split or no split, there's no denying Buffett's investing prowess and Berkshire's outperformance.

In the depths of the Great Recession in 2008, the S&P 500 fell a painful 37%, while BRK.A's book value per share (Buffett's preferred measure of his company's returns because it includes unrealized gains) slipped just 9.6%. From 2007 through 2013, Berkshire's book value per share surged 73% versus the S&P's total return of 44%.

In 2014, BRK.A shares rose 28%. That crushed the S&P 500's 11.4% gain.

The Bottom Line: BRK.A shares are the most expensive shares on U.S. exchanges at more than $214,000 each. While they're expensive, they've also far outpaced the market. For investors looking for a cheaper option, BRK.B shares currently trade at $144 each.

Stay informed on what's going on in the markets by following us on Twitter @moneymorning.

Editor's Note: As a special service to Money Morning readers, we're providing you with the Roadmap to Growing Rich from the Spin-Off Boom. In it, you'll find three additional spin-offs that could double your money this year. Click here to learn how to download your copy.

Related Articles: