January 28th, 2010

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Berkshire Surges After Being Picked to Join S&P 500

From Bloomberg by Andrew Frye

Jan. 27 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. rose the most in nine months after the company’s selection for the Standard & Poor’s 500 Index put its stock within reach of money managers with about $1 trillion in assets.

The Class B stock, which shareholders voted to split 50- for-1 last week, jumped $3.36, or 4.9 percent, to $71.36 at 4:01 p.m. in New York Stock Exchange composite trading. The Omaha, Nebraska-based company will replace Burlington Northern Santa Fe Corp. in the index after completing a planned takeover of the railroad, S&P said in a statement yesterday.

Buffett split the shares as part of the $26 billion deal to acquire the Fort Worth, Texas-based railroad. That brought Berkshire’s stock below $75, making shares available to a larger group of investors and increasing the trading volume. Buffett told investors at a Jan. 20 meeting that joining the S&P 500 may prompt index-tracking fund managers to buy up to 7 percent of Berkshire.

“There’s going to be tremendous buying demand because of this inclusion,” said Glenn Tongue, a partner at T2 Partners LLC, which owns Berkshire shares. “That’s a catalyst for the stock.”

Funds that track the S&P 500 have about $1 trillion in assets, according to David Guarino, a spokesman for S&P in New York. Today’s trading boosted the value of Buffett’s personal Berkshire stake, which includes Class A and Class B shares, by about $2 billion. The company has gained 7.1 percent since the share split was approved on Jan. 20.

‘Smarter Than Anyone’

“There’s Buffett, who’s proven he’s smarter than anyone else,” said Peter Sorrentino, a senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which oversees $12.8 billion. Berkshire “is a stock that belongs in the S&P 500.”

Buffett, the 79-year-old Berkshire chairman and chief executive officer, is welcoming a broader base of investors to the firm he built in the past four decades. Traders and equity analysts have long paid Berkshire less attention than other companies of similar size because of its elevated share price and relatively stable investor base, led by Buffett who owns roughly a quarter of the stock. Berkshire’s Class B shares traded as high as $3,340 the day before the split took effect.

“I can’t imagine another stock that’s more deserving of being in the S&P,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors, which holds Berkshire shares. “It will naturally have higher demand from the index funds.”

Investing ‘Forever’

Berkshire’s Class A shares rose $5,249 to $107,000. The firm, which is valued at about $166 billion, has advanced more than 10-fold over the last two decades.

Buffett says his ideal investment horizon is “forever.” Berkshire is the biggest shareholder of Coca-Cola Co. and American Express Co., and Buffett has held those stocks for more than two decades even as both trade below their top prices in the 1990s. He’s recorded multibillion dollar gains for Berkshire on investments in Capital Cities/ABC Inc. and PetroChina Inc.

Index funds may give Berkshire shares stability, Buffett told shareholders last week.

“You’ve got a permanent stockholder for 6 or 7 percent of your shares,” Buffett said. “We like permanent shareholders. That’s exactly what we’re looking for.”

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

Last Updated: January 27, 2010 16:15 EST