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Friday, October 27, 2006

Premier World Investor (Warren Buffett) does not believe in Share Splits

Splits are all the rage but the way I see it the PRIMARY beneficiaries are your "friends" the stockbrokers...

Why?
  • Unlike a Rights Issues, there is capital "raised" by the Listed Firm
  • The trading increases thus raising listing costs for the Listed Firm
  • The costs of maintaining share registers increases
  • The extra trading benefits the brokers who trade in & out for the shareholders!
  • There is a valid point that some investors may not be able to buy the higher-priced shares but they are in a minority.
Mr. Warren Buffett has never "split" the shares of his Investment Firm, Berkshire Hathaway, since he feels it only creates an opportunity for fast money types. This is the 2nd richest man in the world & he "earned" his money unlike some sheiks & crooks.

When Buffett’s Berkshire Hathaway (nyse: BRKA - news - people ) stock reached $1,300 in 1983, Buffett addressed and rebuffed the prospects for a stock split. “We want [shareholders] 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,” he wrote in a letter to shareholders that year. Source: Forbes

Note that the current price is over $104,000 per share! Yes, that is over KES 7.25 Million per share!

If Berkshire Hathaway was in Kenya, the shareholders might riot in the streets!

Back to Kenya...

Barclays - They have never split their shares in Kenya but there is a chance they may do so. The majority shareholder does not trade their shares i.e. the share price is less of a concern than the profitability of BBK.
BAT - Unlikely at the moment. They prefer paying "good" dividends. The majority shareholder does not trade their shares i.e. the share price is less of a concern than the profitability of BAT.

E.A.Cables - The majority shareholder (Trans-Century) is an outfit that would probably take profits to re-invest in other businesses OR leverage their EAC holdings. Note that the price of EAC has fallen gradually (I told you so) to more reasonable levels. EA Cables has a bright future but the price reflects that future and more!

ICDCIC - The majority shareholder (Chris Kirubi) is a smart investor who IMHO probably take profits to re-invest in other businesses OR leverage his ICDCIC holdings. Note that the price of ICDCIC has fallen and IMHO will continue to fall to reflect the "truer" value. ICDCIC has a bright future but the price reflects that future and more!

8 comments:

kenyanentrepreneur said...

I had a hard time following this post.

I'll try reading it again.

kenyanentrepreneur.com

Kudrinketh said...

Good stuff CT.

Buffett knows that most people who buy because of splits are just speculators who just add transactional expenses and unnecessary volatility to a stock.

And by emphasising business results rather than market prices, it allows shareholders to look at the bigger picture versus focusing on quarterly results(which always results into those stupid analysts calls to see if the results beat or missed the analyst predictions, and by how much,and how much the stock should gain/loose. i told you they're stupid.No wonder most companies are going from public to private just to avoid these shenanigans)

I think most speculators are now buying Barclays hoping for a split.It should be obvious by now to these speculators that a split does not create value,just look at how E.A. Cables is comming down to earth.

As for ICDCIC its a loss-loss situation for those who purchased after the stock split announcement(some fool bought at sh.800!).The stock might be priced lower than its pre-split announcement price simply because its a long time between now and january(when the split will occur).speculators having seen how EA Cables did post split will hopefully put their money elsewhere(possibly in new IPOs, Kenya Re maybe)

kenyanentrepreneur said...

I would say that both you and ct are speculators

Kudrinketh said...

CT
Please substantiate,lest you become a speculator as well.Let me break it down for you:

Before i buy i ask myself if the business i'm buying into will still be around 10 yrs from now.its not that hard to predict that 10,30,50 yrs from now you will still use utilities such as oil,electricity,water.diseases will always be there and so will be drug manufacturers.we all use comodities such as grains,beverages,meat products,alluminium,copper,silver,steel,iron etc.And banks and insurance companies will always be there to help with all the transactions.And we all know that sin products like alcohol,tobacco,guns will always be there.

Now thing that relly on technology like communications,IT, biotech are much harder to predict because of the many changes that make new tecnologies obsolete in a short time.

So an investor like me buys long term on the former and short term on the later.

Kudrinketh said...

sorry CT, you're an innocent bystander.the above rhetoric is aimed at KE

coldtusker said...

Sigh... kudri... I am a WB fan... I salivate while waiting for his "Letter to the Shareholders"...

I have learnt much from him simply by following what he advocates.

Simple rules:
- It is a tough world and gets tougher BUT try and understand what you buy!
- Buy only if you TRUST the Management
- Value is not just assets nor are assets value.
- Don't be greedy
- Buy only if you would buy the entire business
- Read, read and research
- You can't be % right but, hey, 6/10 is good enough

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