Summary: Nasdaq computers store stock prices as a 32-bit number representing the number of 1/100'ths of a penny, which means the highest dollar amount it can store is $429,496.7296 (2 ^ 32 / 10000).
It probably would be for quite some time. The article lists the next highest stock is $5,100. This is all due to stubbornness on the part of Warren Buffet, for better or worse.
Generally, yes. Most companies will go through splits long before that, turning every share outstanding into two or more shares (usually with half the value) on a predetermined date. Having a very high stock price is actually kind of inconvenient, as it makes it hard for random day traders to afford.
There's nothing strange about it and you're referencing things that aren't exactly relevant to the issue. The SEC has rules about lit market quotes which exist to give integrity to the price-time priority. No exchange is allowed to publicly quote fractional pennies so as to give someone a way of "jumping" the queue so to speak, but there are plenty of ways to transact at fractional pennies so long as one isn't quoting it on the lit market.
For example one can submit a mid-point peg order which can be filled at a fractional penny:
There are also auctions that take place on a daily basis, such as the opening auction and closing auction, where trades may execute at a fractional price.
Furthermore NASDAQ also operates as a reporting facility, and as such reports trades made through ADFs such as FINRA, dark pools, off-exchange block trades, and inside quotes which are quite often executed as fractional pennies.
Anyways, all this to say that the situation is a lot more detailed that you make it seem from your two references. It's not just a simple matter of SEC says orders have to be to the penny, so NASDAQ must be doing something really bizarre here.
It looks like the smallest increment before decimalization was 1/16 of a dollar, or $0.0625, which could be represented exactly in 4 decimal places. So, by storing the value of the stock to this precision, both old and new prices could be stored in this format.
Frequently if the bid is say 40.10 and the ask is 40.09, the mark is shown as 40.095. Not sure if that's why they have hundredths, or just to support those legacy cases of odd fractions.
Orders are generally quoted in cents, but trades execute off-book at fractional cent prices on a regular basis (e.g. when a HFT firm is providing price improvement).
At a previous job (over a decade ago), I worked on software that stored prices in centipennies. I'm pretty sure it's no longer in production. At least, I hope it isn't.
But these things sometimes surprise me. A few years ago I paid a visit to my coworkers at the job I had in high school in the mid nineties. I had written some sort of email processing program in C; I don't even remember what it did any more. I was told they are still using it, 25 years later. Awesome or scary, I don't know which.
> When pressed on the issue, [Warren Buffet] has told shareholders that a lower price would bring unsophisticated short-term investors into the stock.
With respect to Buffet who has talent and is not a total fraud he gets a large fraction of his outsized returned in trades not available to you and me. Off market placements for example. Do you think your returns would have improved if you could buy Goldman Sachs at a 20% discount to market? Yeah me too.
Marketing and promotion is one way he gets those offers you and I don't. (No not the only way, he has billions to invest too, but his name helps). Having the highest share price for a single unit of stock is something else to talk about and color a story if you're reporting it. He's very good at this promotion. His annual letter was a previous generation's version of Elon Musk's tweeting, hiring onion writers, flame throwers and so on that gets Elon so talked about.
It's a skill, a talent. Finding the opportunities and exploiting them in a way that doesn't significantly blow back at you. Buffet executes it brilliantly. Something to consider in your own business. Is there something else you can exploit like that which would make for a paragraph in the story of your company?
You can go to the meeting with BRK.B. Buffett prefers long-term holders, and the feeling was a higher share price makes things a little less liquid. With fractional share ownership it's kind of a wash now.
Even BRK.B would be 50x more its current price but it had to be split when they bought Burlington Northern with stock to accomodate BNSF shareholders.
The major difference is voting power. Economic interest is pro rata, but voting is much different (not that it matters in the current environment). That, and BRK issues direct tender offers to BRK.A holders.
Voting power is in my understanding the real reason. Dollar for dollar a shares have seven times the voting power of a b share. Following his death, the foundations he has bequeathed his wealth to need to sell his shares over the course of ten years. Ordinarily this would result in institutional investors having a majority of the voting power. To avoid this the a shares will be converted to b shares in order to reduce the voting power. A shares are by and large held by investors who have been with Berkshire for decades. Hopefully they will continue the long term focus of Berkshire. Once their progeny start inheriting the shares I think all bets are off. I worry activist investors will convince institutional investors to break Berkshire apart.
I think you get tickets with BRK.B too. A friend of mine sells the tickets he gets on ebay and says that's a bigger dividend than the stock will ever pay :)
Joke's on those that think having 0.9 share at Robinhood is the same as owning a real share. Try voting or going to a shareholder meeting with your fractional share and see how it goes...
"a lower price would bring unsophisticated short-term investors into the stock"
Haven't "sophisticated" investors been conned, suckered, and fleeced as long as stocks existed and even before?
From participation in the South Sea Bubble (the original "bubble") to the Tulip Craze to Bernie Madoff to Enron to cryptocurrencies and beyond.
Not to mention that deep pockets don't necessarily equal sophistication (even when they spend enormous sums to hire professionals to manage their money), and the fatter your pockets the juicier a mark you're going to make for people whose lives are dedicated to funneling money from your pocket to theirs.
I think it's just a matter of terminology/framing -- large sophisticated, moneyed market participants is a "financial crisis" and smaller players getting conned/suckered/fleeced is "enabling gambling". On one hand I don't care for the moralizing and condescension but on the other hand, Berkshire has more business/market knowledge in their trashcans than I have in my head.
That said, Berkshire has always been on the side of the little guy in a sense, even if they're a bit condescending about it -- Warren Buffett has been very vocal about investing in index funds (even putting a tiny bit of his money where his mouth is and challenging fund managers to beat it) this whole time and it's been a good strategy over a very long time frame.
Now, one of the things that no one tells you about the stock market is that a LOT of players make money by front-running and middle-manning the whales (index funds, pension funds, etc), so you'd maybe think it was a trap to just make the whales bigger, but in general the strategy of just investing in broad index funds has been good regardless for individual investors.
Another thing that's been made pretty clear in the previous year is that governments will bail out businesses first in crises. One of the really crazy things that Warren mentioned was just how wide "spreads" (difference between pristine debt aka bonds and debt from struggling companies aka junk bonds) got in march of 2020 -- near/surpassing 2008. He joked that Berkshire couldn't even have floated debt in that market, which is why the Fed doing what it did was necessary. The usual arguments of businesses as "job creators" is maybe valid in some sense, but capitalism without repercussions/negative feedback is what we seem to be trying to drive hard to. Companies that are not prudent with their cash and record profits for the last 10 years of extremely loose fiscal policy should be punished. We expect individuals to save for a rainy day, why don't we expect companies to do so?
I remember it was a discussion topic during my graduate degree in finance. According to theory, the story about unsophisticated investors is stupid since you could basically start an ETF with only BRK stuff in it and sell it at a lower price.
You can skip ETF management fees and just look up their latest SEC filing. Here is a pie I made in M1 (which you can invest with the click of a button if you have an account) which is similar to their public holdings but with tech stocks (Apple and SNOW) removed: https://m1.finance/6rAREGn34Ai2
Fund shareholders typically don’t show up to the shareholder meetings of the fund’s underlying holdings and don’t vote because the fund itself is the shareholder, rather than the fund’s shareholders. (If that makes sense...) So it did in a way keep the unsophisticated investors from exercising too much control but it did bring fund managers into the mix. Which is arguably worse. Hence BRK.B.
Surprising that they are they rushing to fix it at the last minute when Berkshire Hathaway's stock price has been steadily climbing towards that limit for decades. For about half the time that Nasdaq even existed, it's been more than 20% of the way there ($70,000 in 1998). Surely they've touched their software sometime between then and now and had the opportunity to notice the problem.
I remember a friend complaining that he had to work over the weekend when they hit 10,000. That 5th digit screwed up all their column formatting. Technical debit is ever present, unfortunately.
Oh no! I just remembered I have a time-limited trial feature in my own software that won't work past 2022 because when I implemented it, I assumed I'd either rewrite it or be out of business by then. Now I have some more empathy.
1. Banks and other stakeholders subscribe to binary formats of price data. Making this change means forcing everyone to update. And those subscribers are paying customers who will likely be against this change.
2. These are old codebases with likely many uses of 32 bit prices, and if written in C/C++, conversion from int is particularly hard because those languages like to automatically cast to int without a warning (so you can’t rely on compiler errors to tell you what you have left to fix).
3. These are performance critical systems. Adding an extra 32 bits of all zeros (or, all zeros 99% of the time) means you slow everything down for one special case.
I’m not saying it cannot be done, but I can see being very pissed at any company who makes you do tons of work for their marketing trick. (Surely a 200k stock is just as out of reach from the average person?)
Back in the mid 2000s I was working on a stock ticker display for an embedded device. I got into regular arguments with people that couldn't be convinced that a stock price would ever exceed 3 digits.
BRK.A was written in black Sharpie on a post-it above my desk, I would just point to it. I think it was $90,000 back then.
From what I can tell, BRK has not been remarkable for at least 10 years now. Or at least since the Goldman deal where Buffett famously got a discount. In fact, I’m pretty sure Buffett lost out on a ton of growth because he was anti tech for a while, since he liked to claim he did not invest in businesses he did not understand.
I doubt the insurance companies are driving BRK’s price growth anyway. The biggest contributor is probably his stake in Apple.
Any broad market index fund ETF probably did just as well, if not better.
If you choose to _sell_ at $1 you will likely get a warning because it will fill instantly at the current market rate despite being a limit order. However you can choose to buy at $1 and there's no reason for it not to be accepted into the order book. In fact you often see this via Nasdaq TotalView during low liquitiy events such as right as the premarket opens where someone is bidding $1 or $0.01 for shares of a blue chip company.
I don't know about refuse, but if it did go through it would definitely raise a bunch of red flags from the anti-money laundering checks, IME these are taken very seriously. Accounts involved would probably get locked pretty quickly.
A yes, the famous S500K problem. Like the even more famous Y2K problem people (a small number in this case) will rush to fix it in time, and then the consensus will be that the whole thing was overblown.
Making limiting simplifications is one of the important legs of engineering (the other two being making tradeoffs and focusing on accomplishing the goal).
Sorry, it was a bit of a joke: Y2K was Year 2000 and my made up name S500K was Stockprice over around $500K. I suppose I should have written "famous".
Those of us over a certain age remember how much work went into patching the Y2K issue, and how it changed the software industry, and yet was pooh-poohed by the general press in the final year of the last millennium (2000) when nothing material went wrong.
My point was the article was a little bit alarmist, which it almost had to be to spin out a brief article about what is otherwise an amusing piece of trivia that would fit in a sentence: "Berkshire Hathaway's price has almost reached the point where it can't be represented in NASDAQ's computer, but they are patching their code and expect everything to work fine by the time the stock reaches that point, if ever."
I'd be glad to chuckle in passing upon encountering that sentence, but was annoyed at the padding used by the poor reporter to make an article of it. Given the state of the world it's hard to blame anyone (reporter, editor, Bloomberg management...) for this phenomenon.
When you are designing a very high throughput system you do often end up needing to trim bits from a transaction in order to fit an integral number into a page/packet/buffer or even a cache line.
Other kinds of code may not have these kinds of requirements in which case I agree that these kinds of limitations can be short sighted.
But that kind of decision is what I was talking about with respect to engineering.
Readit News
* Until 2000, stocks were priced in fractions of a dollar (8ths, 16ths, etc) before moving to cents (https://www.sec.gov/hot/decimal.htm)
* These days, prices on exchanges must be in one cent increments, and not smaller (https://www.sec.gov/divisions/marketreg/subpenny612faq.htm)
Perhaps they're using the same software as for overseas markets, or its some future-proofing gone wrong or something.
For example one can submit a mid-point peg order which can be filled at a fractional penny:
https://www.nasdaqtrader.com/content/productsservices/tradin...
There are also auctions that take place on a daily basis, such as the opening auction and closing auction, where trades may execute at a fractional price.
Furthermore NASDAQ also operates as a reporting facility, and as such reports trades made through ADFs such as FINRA, dark pools, off-exchange block trades, and inside quotes which are quite often executed as fractional pennies.
https://www.nasdaqtrader.com/content/home/help/tsiqtxtkey.pd...
Anyways, all this to say that the situation is a lot more detailed that you make it seem from your two references. It's not just a simple matter of SEC says orders have to be to the penny, so NASDAQ must be doing something really bizarre here.
Deleted Comment
But these things sometimes surprise me. A few years ago I paid a visit to my coworkers at the job I had in high school in the mid nineties. I had written some sort of email processing program in C; I don't even remember what it did any more. I was told they are still using it, 25 years later. Awesome or scary, I don't know which.
$429,496.7296 would overflow
there's BRK.B for that. BRK.A is what, a vanity stock?
I've long had the idea that the reason to buy any BRK.A is because ownership of a single share allows you to go to the shareholders meeting in Omaha.
https://www.investopedia.com/ask/answers/021615/what-differe... doesn't mention the shareholders meeting, so maybe that's outdated or apocryphal.
With respect to Buffet who has talent and is not a total fraud he gets a large fraction of his outsized returned in trades not available to you and me. Off market placements for example. Do you think your returns would have improved if you could buy Goldman Sachs at a 20% discount to market? Yeah me too.
Marketing and promotion is one way he gets those offers you and I don't. (No not the only way, he has billions to invest too, but his name helps). Having the highest share price for a single unit of stock is something else to talk about and color a story if you're reporting it. He's very good at this promotion. His annual letter was a previous generation's version of Elon Musk's tweeting, hiring onion writers, flame throwers and so on that gets Elon so talked about.
It's a skill, a talent. Finding the opportunities and exploiting them in a way that doesn't significantly blow back at you. Buffet executes it brilliantly. Something to consider in your own business. Is there something else you can exploit like that which would make for a paragraph in the story of your company?
Even BRK.B would be 50x more its current price but it had to be split when they bought Burlington Northern with stock to accomodate BNSF shareholders.
The major difference is voting power. Economic interest is pro rata, but voting is much different (not that it matters in the current environment). That, and BRK issues direct tender offers to BRK.A holders.
Haven't "sophisticated" investors been conned, suckered, and fleeced as long as stocks existed and even before?
From participation in the South Sea Bubble (the original "bubble") to the Tulip Craze to Bernie Madoff to Enron to cryptocurrencies and beyond.
Not to mention that deep pockets don't necessarily equal sophistication (even when they spend enormous sums to hire professionals to manage their money), and the fatter your pockets the juicier a mark you're going to make for people whose lives are dedicated to funneling money from your pocket to theirs.
That said, Berkshire has always been on the side of the little guy in a sense, even if they're a bit condescending about it -- Warren Buffett has been very vocal about investing in index funds (even putting a tiny bit of his money where his mouth is and challenging fund managers to beat it) this whole time and it's been a good strategy over a very long time frame.
Now, one of the things that no one tells you about the stock market is that a LOT of players make money by front-running and middle-manning the whales (index funds, pension funds, etc), so you'd maybe think it was a trap to just make the whales bigger, but in general the strategy of just investing in broad index funds has been good regardless for individual investors.
Another thing that's been made pretty clear in the previous year is that governments will bail out businesses first in crises. One of the really crazy things that Warren mentioned was just how wide "spreads" (difference between pristine debt aka bonds and debt from struggling companies aka junk bonds) got in march of 2020 -- near/surpassing 2008. He joked that Berkshire couldn't even have floated debt in that market, which is why the Fed doing what it did was necessary. The usual arguments of businesses as "job creators" is maybe valid in some sense, but capitalism without repercussions/negative feedback is what we seem to be trying to drive hard to. Companies that are not prudent with their cash and record profits for the last 10 years of extremely loose fiscal policy should be punished. We expect individuals to save for a rainy day, why don't we expect companies to do so?
Voting rights.
Deleted Comment
You can skip ETF management fees and just look up their latest SEC filing. Here is a pie I made in M1 (which you can invest with the click of a button if you have an account) which is similar to their public holdings but with tech stocks (Apple and SNOW) removed: https://m1.finance/6rAREGn34Ai2
Depot tools should work and about 1.5 years you could build most of Chromium on Windows with Python 3.
[0] https://bugs.chromium.org/p/chromium/issues/list?q=Proj%3DPy... [1] https://bugs.chromium.org/p/chromium/issues/detail?id=942720...
1. Banks and other stakeholders subscribe to binary formats of price data. Making this change means forcing everyone to update. And those subscribers are paying customers who will likely be against this change.
2. These are old codebases with likely many uses of 32 bit prices, and if written in C/C++, conversion from int is particularly hard because those languages like to automatically cast to int without a warning (so you can’t rely on compiler errors to tell you what you have left to fix).
3. These are performance critical systems. Adding an extra 32 bits of all zeros (or, all zeros 99% of the time) means you slow everything down for one special case.
I’m not saying it cannot be done, but I can see being very pissed at any company who makes you do tons of work for their marketing trick. (Surely a 200k stock is just as out of reach from the average person?)
Deleted Comment
BRK.A was written in black Sharpie on a post-it above my desk, I would just point to it. I think it was $90,000 back then.
I doubt the insurance companies are driving BRK’s price growth anyway. The biggest contributor is probably his stake in Apple.
Any broad market index fund ETF probably did just as well, if not better.
https://www.google.com/finance/quote/BRK.A:NYSE?comparison=N...
The same applies in reverse.
Making limiting simplifications is one of the important legs of engineering (the other two being making tradeoffs and focusing on accomplishing the goal).
Those of us over a certain age remember how much work went into patching the Y2K issue, and how it changed the software industry, and yet was pooh-poohed by the general press in the final year of the last millennium (2000) when nothing material went wrong.
My point was the article was a little bit alarmist, which it almost had to be to spin out a brief article about what is otherwise an amusing piece of trivia that would fit in a sentence: "Berkshire Hathaway's price has almost reached the point where it can't be represented in NASDAQ's computer, but they are patching their code and expect everything to work fine by the time the stock reaches that point, if ever."
I'd be glad to chuckle in passing upon encountering that sentence, but was annoyed at the padding used by the poor reporter to make an article of it. Given the state of the world it's hard to blame anyone (reporter, editor, Bloomberg management...) for this phenomenon.
All of mainstream computing should have 64 integers by now, 4 digit years, etc.
Other kinds of code may not have these kinds of requirements in which case I agree that these kinds of limitations can be short sighted.
But that kind of decision is what I was talking about with respect to engineering.