Here’s why Berkshire Hathaway’s stock is performing well
Berkshire Hathaway was frequently one of the least traded renowned corporations since its Class A shares are among the market's most expensive stocks, trading for more than $400,000 per share. So many people were perplexed by a volume increase that started more than a year ago.
A recent study that was published on Wednesday gave insight to this trading spree and came to the conclusion that a tweak in how online brokers like Robinhood and others reported statistics on fractional trading was to blame.
The "Rounding Up" rule, which the authors named, was implemented by the Financial Industry Regulatory Authority in 2017 and requires brokers to disclose fractional trades — often just 1/100th of a share — like they were for one full share.
“This volume is due to the interaction of a well-intentioned but misguided FINRA reporting rule, Robinhood trading, and fractional shares,” wrote the authors — Robert Bartlett at University of California, Berkeley, Justin McCrary at Columbia University and Maureen O’Hara at Cornell University.
It wasn't until 2021, when retail investors' trading frenzy brought on by the pandemic increased the use of fractional trading, the impact of this rule change went mostly unreported.
Trading volumes for several equities became greatly overstated as more small deals began to be recorded as whole shares. According to the authors, in Berkshire's example, this alleged "phantom" volume currently accounts for 80% of the Class A shares' trading volume on a daily basis.
In March, shares of the Omaha, Nebraska-based group reached a record high above $500,000. Since then, however, they have fallen more than 20% to roughly $430,000 per share despite a sell-off in the larger market.
According to the report, the trading volume for this expensive brand increased more than tenfold in March 2021 compared to its previous ten-year average daily volume of 375 shares. Volumes have remained at these high rates.
According to a FINRA official who talked to CNBC on Wednesday, the organization is aggressively working on the problem and is having continuing meetings with businesses and regulators. The inclusion of a fractional share quantity is not supported by "the current trade reporting systems" (apart from the Consolidated Audit Trail). It is important to consider this while interpreting FINRA's trade reporting recommendations.
Hathaway increased its ownership of Occidental Petroleum to 19.4 percent by investing an additional $122 million in the company's stock.
According to an SEC filing this week, the company owned by the wealthy investor purchased 1.9 million shares for an average price of $57.70 per. In light of Occidental's Monday closing price of $60.05, Berkshire now holds roughly 182 million shares of the oil and gas producer, representing a holding with a value of $10.9 billion.
In terms of Occidental's profits as stated by the company, Berkshire is currently close to holding 20% of the company.
The "equity method" is already used by Berkshire to account for its investments of over 20 percent in businesses like Kraft Heinz, Pilot, Berkadia, and others.
Occidental's preferred shares, which Berkshire owns in addition to its regular shares and are valued $10 billion, have a yearly dividend yield of $800 million. Additionally, it has stock warrants that give it the authority to spend $5 billion for an additional 83.9 million common shares.
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