shareholders

The Rights of Shareholders? An Owner Is an Owner  
Photo of Warren Buffett surrounded by reporters with microphones

Photo courtesy of AP

Clients, the hallmark of our investment strategy is ownership of companies whose outlooks are favorable, in our view. A share of stock is a piece of the action: ownership of a fraction of an enterprise.

We have owned businesses in very old lines of work, like manufacturers of farm equipment. And we’ve owned companies in new lines of work, like cloud services. We’ve been in airlines and autos, software and chipmakers, miners and medicine.

Owners have rights. We elect directors. We receive our share of dividends paid. We get annual reports—and have the right to attend shareholder meetings.

Most of us pay little attention to the trappings of corporate governance, with one exception.

Held in Omaha where its long-time leader Warren Buffett was born, Berkshire Hathaway hosts one of the largest annual shareholder meetings on the planet, with tens of thousands of people descending on the city for the festivities.

Each spring, information about Berkshire subsidiaries and the products and services they offer is shared during this corporate tradition. You can buy everything from insurance to ice cream treats. Visitors learn about companies as diverse as railroads and homebuilders.

Did we mention? Shareholders also happen to get discounts at Nebraska Furniture Mart, Borsheims, and other retailers.

For many years, Buffett himself and key leaders would entertain questions from shareholders for hours, before conducting the business of the annual shareholder meeting itself. Some say that Buffett is among the most successful investors in the history of the world: when he stepped down as CEO of Berkshire at 95 years of age, his longevity also became cemented in his legacy. He’s not alone in that in Berkshire history, either: the late Charlie Munger, long-time vice chairman, passed at age 99.

Buffett, Munger, Buffett’s descendants, and other individuals and entities have owned a vast swath of the voting control of the company over the decades.

But here’s the thing: an owner is an owner. Even a single share of stock entitles the holder to certain rights. Shareholders may inspect select corporate documents, beyond those already published and available to the public. They can nominate and send in votes to elect members to the board of directors.

And they’re allowed to participate in the annual meetings.

This spectacle of Omaha is a powerful reminder of the meaning of ownership. It’s getting a piece of the action—and being part of something bigger.

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Clients, if you have an interest in attending or taking advantage of other opportunities, you’ll need shareholder credentials. A form to order those should be included in Berkshire’s Annual Report, or you can stay tuned for more details from us in the weeks ahead. 

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time. Companies mentioned are for informational purposes only, and this communication should not be considered a solicitation for the purchase or sale of their securities. 

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The Rights of Shareholders? An Owner Is an Owner – 228Main.com Presents: The Best of Leibman Financial Services

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STOCK SPLITS AND SWEETS
photo shows a variety of individually-wrapped taffy pieces

Arithmetic is important in our line of work, but its lessons can be found all over.

My older brother gave me one such lesson when I was very young. There was a particular joy in convincing any of my siblings to share candy or treats with me. One day, my brother offered to split a piece of taffy.

“Mark,” he said, “how would you like a fourth of this piece?”

“Yes!” I said.

“If you think that sounds good, what about a tenth of this piece?”

I didn’t know much then, but ten was definitely bigger than four, so this development was promising. I nodded.

“Great! But how about a twentieth of it?”

I could barely contain my excitement. What a deal!

By the end of this process, we settled on a figure. My brother tore me off the tiniest corner of the taffy, and I learned a valuable lesson about math.

At the risk of oversimplifying, we thought of this story again with this news of some major companies executing stock splits.

A stock split is what it sounds like: a company increases the number of shares issued to holders by splitting each existing share into some fraction. Apple recently split four-for-one; Tesla just split five-for-one. (Unlike the taffy lesson, they don’t keep the other pieces! Shareholders went from owning one share to owning four or five, respectively.)

Why split stocks? In years gone by, the idea was that soaring prices made some companies out of reach for smaller investors. A stock split on an expensive company made a single share more affordable, and in theory more investors could get a piece of the action.

Today, many trading platforms allow investors to purchase “fractional shares,” which are also just what they sound like: even if you can’t afford a whole piece, plenty of platforms will still sell you a corner of it.

So why a stock split? Even if it’s not doing much to make the company more accessible to more investors, the move still communicates that idea. It’s a strong marketing campaign for valuable companies.

What does it mean for us? Not much. Remember, we want a piece of the action: any way you slice it, the ingredients and quality of the piece haven’t changed.

A stock split changes the mechanics of how the company is traded. It does not change the mechanics of the company—its outlook, its output, its fundamentals.

Math will always be important in our work, but in this case, we’re not going to let the numbers complicate the situation. Whether we’re splitting the taffy in two pieces or twenty, we know what we’re getting.

Clients, if you want to talk about this or anything else, please write or call.

Stock investing includes risks, including fluctuating prices and loss of principal.