How Aussies can buy Warren Buffett shares without paying $445,000

Warren Buffett is perhaps the world’s most celebrated stock investor, but shares for his company are phenomenally expensive.

The price for Berkshire Hathaway Inc (NYSE: BRK.A), Buffett’s publicly listed investment vehicle, has risen so much over the decades that as of August 14 it sits at an astounding US$318,114 (AU$444,660).

This isn’t exactly an accessible price for mum-and-dad investors.

But there is a neat trick, not available to Australian companies, that can be used to get yourself to the “Buffett” table.

It’s called fractional shares.

“Fractional shares are portions of whole shares of a stock or ETF,” Stake chief operations officer Dan Silver told The Motley Fool Australia.

“This means that you can trade a dollar amount of a stock irrespective of the share price — you have the flexibility to invest what you want.”

So for Berkshire Hathaway, you could buy 0.003 of one share to pay just US$1,000 for a piece of Warren.

Amazon.com Inc (NASDAQ: AMZN) shares, at more than AU$4,000 each, is another example where it might make sense to buy a fraction.

Silver said fractional shareholders have the same rights as full-stock owners.

“Fractional shares are held in your name with our broker and custodian, so you have full beneficial interest,” he said.

“For example, this means that you receive dividends and any other corporate actions on a pro-rata basis.”

Why are fractional shares not available in Australia?

Cultural and systemic differences mean fractional investing is not available for companies listed in Australia.

Silver said in the US, brokerage fees have tended to be on a per-share basis, meaning transaction costs are reduced as the share price climbs.

But in Australia brokerage fees tend to be pegged to the trade value.

“[Australian] share prices are rarely above a couple of hundred dollars. There is more incentive for companies to maintain share prices at a level that does not prevent retail ownership.”

US shares are owned by a custodian (usually an institution) on behalf of the benefiting customer, rather than held directly by the shareholder like in Australia.

This ownership model makes fractional shares easier to implement.

In the US, stock splits and dividend reinvestment plans can also result in part-shares floating around. In Australia, leftover dividends are often held as a credit to be used at the next opportunity.

Fractional shares can be harder to sell

Although fractional stocks are becoming more prevalent, only certain brokers and broking platforms deal in them – meaning they’re not available to the entire market.

This could make it harder to sell later.

The selling brokerage firm would have to join your fraction with other fractions to form a whole share to trade on the open market.

But if they’re popular stocks like Berkshire Hathaway and Amazon, perhaps this hurdle is nothing to worry about.

More reading

• Stock split watch: Could Amazon be next?
• ASX investors have been buying these international shares
• MoneyMe share price surges, but is it sustainable?
• Here’s what a stock split means for investors
• 5 investing tips from Irving Kahn – who called the 1929 stock market crash

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post How Aussies can buy Warren Buffett shares without paying $445,000 appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3kLthx9