Mr. Buffett's Berkshire Hathaway Inc. (BRK-B), whose multi-thousand-dollar share price made it a thinly traded luxury of wealthy investors and institutions, is going mainstream as it joins the Standard & Poor's 500-stock index.
More than $1 trillion of investor money directly tracks the index. The result is a scramble for Berkshire shares by index funds that, by one estimate, will reach $14 billion of buying. This further exposes Berkshire stock to the stratagems of fast-moving traders, a brand of investor anathema to Mr. Buffett's general buy-and-hold approach.
Small-time investors, meanwhile, will finally be getting a piece of Mr. Buffett just as uncertainty builds about the future of his $178 billion conglomerate, which is one of the largest public companies in the U.S., selling everything from insurance to underwear. The 79-year-old Mr. Buffett is entering the twilight of his career, and little is known about his succession plans, other than that he has placed the name of his replacement in an envelope he keeps in his office.
Yet small investors are likely soon to have billions of dollars more in Berkshire stock, thanks both to its entry into the index and to a recent stock split.
Berkshire has long had two classes of stock. It split the lower-priced of these, known as the B shares, 50 to 1, making them affordable to more individual investors.
Joel Nath, a 25-year-old accountant who participates in an investment club called "Scratch & Win," always wanted to buy some Berkshire. The late-January split put the B shares, commonly known as Baby B's, within his reach. He bought nine at $73 each. (They closed Thursday at $76.69.)
Mr. Nath, who lives and works in Omaha, Neb., where Berkshire is based, was turned on to investing at a young age by his grandmother, Marlene Matney. While baby-sitting for him and his two brothers, Ms. Matney, now 78, taught them to look at ticker symbols on television when they were learning the alphabet.
More recently, Ms. Matney was disappointed when she wasn't allowed to join "Scratch & Win," because the investment club didn't want two members from the same family. But she still has an edge. In the aftermath of the stock split, Mr. Nath and his brothers all bought shares for more than $70 each, Ms. Matney said, "but they didn't know that I waited until it went down." She bought hers for $68.
Sensing opportunity in Berkshire's move to the S&P 500 index, hedge-fund manager Jonathan Carmel has already made his move to play the stock.
In early November, when Berkshire first said it would split its Class B shares as part of a $26 billion deal to purchase Burlington Northern Santa Fe Corp. (BNI), he raced to crunch the numbers on how Berkshire's share price might be affected.
Conventional wisdom holds that the flood of purchase orders from fund managers with portfolios tied to the S&P 500 will drive up the price of Berkshire shares as the markets close Friday. Both the A and B shares would appear to be proving the theory correct: They are up more than 10% since the stock split.
Realizing that the split made Berkshire a likely candidate for the S&P 500, Mr. Carmel calculated how big a weighting the company would be in the index. From there, he estimated that maybe $40 billion in investor capital might flow into the stock, and began scooping up the higher-priced Class A shares for about $100,000 apiece. (There's no affordability issue for an institutional investor.)
His expectation was for a 20% pop in Berkshire stock as the S&P addition neared; so far, he is more than halfway there. The A shares closed at $114,950 Thursday.
On Thursday, Berkshire shares gained 3% on the New York Stock Exchange.
Berkshire is expected to make up about 1.4% of the S&P 500, although the figure could change based on Friday's trading. Other funds that closely follow the index are likely to buy billions more, pushing the amount closer to the estimate of Mr. Carmel, whose fund is Carmel Asset Management.
A continued upswing would allow speculative traders who recently bought Berkshire shares to flip them for a profit to index managers. But that isn't guaranteed. "Some traders will buy now and try to sell on the close," said Tom Joyce, chief executive of the trading firm Knight Capital Group. "But if everybody does that, then there's nothing to buy. Then you have a surprise on the other side of the trade, meaning the close is lower." Mr. Joyce's traders estimated that of about 160 million B shares that index managers will need to buy, half have already been snapped up.
Berkshire's B shares, which traded an average of 36,000 shares a day before the split, spiked to 23 million shares of trading volume on Thursday. As of Feb. 9, the Bill & Melinda Gates Foundation was the issue's largest holder, with a 10.5% stake, followed by Mr. Buffett, with a 10.1% stake, according to data from FactSet Research Systems Inc.
A typical new S&P component stock would be heavily traded for three to five days before it joins the index, traders say, with volume spikes at the open and close of trading on the final day or two. Since Berkshire trading jumped dramatically after the Class B stock split and the S&P announcement, though, there's talk that Friday's traffic could be lighter than expected.
The jockeying among hedge-fund pros hasn't stopped smaller players from making a grab at Berkshire B shares.
Retail brokers like 82-year-old Floyd Jones, who has been recommending Berkshire to his clients for decades, advocated adding to Berkshire positions.
An investment in the company "will be paying off for many years to come," Mr. Jones said. He and his son Steve Jones, who works two doors down from him at the small brokerage firm First Washington Corp., believe they and their clients together have one of the largest concentrations of Berkshire shares in the Seattle area.