StreetSmartPost

Friday, January 29, 2010. 9:15 am.

Last week Warren Buffett’s holding company Berkshire Hathaway split its ‘B’ shares 50 to 1. The move was an abrupt turnaround from Buffett’s long-time aversion to stock splits.

Through the decades, as the economy and markets and his investments grew, the ‘A’ shares have sold as high as $148,000 a share, and the ‘B’ shares as high as $4,700 a share.

It’s always been assumed that Buffett’s reason for never splitting the shares was that he wanted the stock in the strong hands of the wealthy, who would not need to be periodically selling shares to raise money for other purposes, and who could handle the markets ups and downs without bailing out.

However, in November Buffett decided to acquire the 78% of railroad Burlington Northern that he didn’t already own, offering Burlington’s shareholders $100 a share, to be paid in either Berkshire stock, or cash. In order to allow more of Burlington Northern’s smaller shareholders to opt for the Berkshire shares rather then cash, he announced he would split Berkshire’s ‘B’ shares 50 to 1. The split took place last Thursday. The stock was trading around $3,440 a share on Wednesday and just under $70 after the split.

The move also allowed Standard & Poor’s to more easily put Berkshire Hathaway stock in the S&P 500 index, and the S&P 100 index, which it subsequently announced will happen in February (when the acquisition of Burlington Northern takes place and Burlington is removed from the S&P 500).

First the stock split, making Berkshire shares infinitely more affordable for small investors who would love to finally be able to invest with the “best investor in the world”, and then Berkshire’s coming move into the S&P 500 index, brought significant buying volume and a nice pop-up in the stock.

I wonder if new investors to the stock will expect that investing with Buffett now that they can, will be a calming experience devoid of stress. After all, books about Buffett’s ‘way’ rarely talk about anything but his wisdom, wealth, and profits. Those who interview him treat him with awe, and would never dream of bringing up anything negative as he talks of his holdings and the sectors and markets he likes.

However,  he does speak often of having a five or ten-year time horizon when he makes an investment.

I wonder if new investors will bother to look at a long-tern chart to see what that might mean in the way of significant up and down volatility and stress, of the type that has them “swear off the damned market for good”, or jump from manager to manager hoping to find the impossible, someone who never has a problem period.

Because within his super long-term performance, Buffett seems to run into as much, if not more, volatility than most money managers. For example a 49.3% plunge in 1998 and 1999, before the 2000-2002 bear market began that took more than five years to get back to even, a 53% plunge in 2008-2009 from which he’s only recovered halfway so far. And a few other double-digit declines of 12 to 18 months duration.

If small investors follow their usual pattern of chasing performance (switching to whatever fund or sector or manager that was up over the most recent 12 months),  Buffett is liable to experience what he previously strived to avoid by not splitting his stock to bring it down within everyone’s reach.

Fourth quarter GDP grew 5.7%, better than forecasts of 5.4%!

The Commerce Department reported this morning that the economy grew at an annualized rate of 5.7% in the December quarter. It was the fastest quarterly pace since the third quarter of 2003 when the 2002-2007 bull market was in its early stages.

It was an increase over the 2.2% growth in the 3rd quarter of last year, which ended the severe recession. But overall the economy contracted by 2.4% for the full year of 2009, the worst year since 1946.

There were some problems within the report. Most of the 4th quarter growth came from a build-up of business inventories. Consumer spending rose 2.2%, less than the 2.9% rise in the 3rd quarter.

But business investment grew at a 2.9% annual rate, investment in housing at a 5.7% rate.

Overall, economists give the report high marks, but still expect economic growth will slow to 2.5% in coming quarters as the boost from inventory building fades.

Yesterday in the U.S. Market.

An ugly day after three days of trying to recover from last week’s big loss.

The market was down almost from the open, with the Dow down 180 points at its low at 11:30 am when it tried to claw its way back only to run into sell programs in the final half hour, to close down 115 points, or 1.1%.

Yesterday’s intraday chart:

The Dow closed down 115 point, or 1.1%. The S&P 500 closed down 1.2%. The NYSE Composite closed down 1.1%. The Nasdaq closed down 1.9%. The Russell 2000 closed down 1.7%. The DJ Transportation Avg. closed down 2.3%.

SUBSCRIBERS: The new issue of the newsletter is available on your website from Wednesday!

Asian Markets negative yet again last night, closing 2nd ugly week in a row.

While the U.S. market has been trying to recover this week from last week’s plunge, Asian markets continued with more sharp declines, only one positive session.

And it was another down session last night to end the week.

The DJ Asia-Pacific Index closed down 1.7%.

Among individual countries:

Australia closed down 2.1%. China closed down 0.2%.  Hong Kong closed down 1.2%. India closed up 0.3%. Indonesia closed down 0.3%. Japan closed down 2.1%. Singapore closed down 0.4%. South Korea closed down 2.4%. Taiwan closed down 0.7%.

If you’d like to see a three-month chart of any or all of the above indexes click here, and then click on any of the markets in the similar list at the left side of the page it takes you to.

Markets this morning.

European markets are up quite strongly, adding to gains after 4th quarter GDP numbers were released at 8:30 in the U.S, now up more than 1% on average.

Oil is up $1.09 a barrel at 74.73 at the moment.

Gold is unchanged at $1,084 at the moment.

Markets in the U.S.

This week’s heavy schedule of potential market-moving economic reports co
ntinues. To see the full schedule of the reports click here, and look at the left side of the page it takes you to.

Monday it was a shocker, that Existing Home Sales plunged 16.7% in December, the biggest monthly drop in 40 years. Tuesday it was that Consumer Confidence rose to 55.9 in January from 52.9 in December. Wednesday it was that New Home Sales unexpectedly fell 7.6% in December, and the Fed’s FOMC announcement which was taken as a positive regarding the economic recovery. Yesterday it was that Durable Goods Orders rose 0.3% in December, less than forecasts of a 1.7% gain, and new claims for unemployment fell by 8,000 last week, not as positive as the consensus forecast for a decline of 28,000 claims.

This morning it was the first estimate of 4th quarter GDP, and it was a positive surprise, showing the economy grew 5.7% in the December quarter, compared to the consensus estimate of 5.4%, It was the largest gain since the 3rd quarter of 2003 as the last bull market was underway.

The report improved our pre-open indicators, which were already somewhat positive, but not as much as might have been expected on the GDP number.

Our pre-open indicators this morning are positive, pointing to the Dow being up 60 points or so in the early going.

Stock Market Patterns.

The next ‘monthly strength period’ was due to begin yesterday, and to run through next Thursday, Feb. 4. It sure got off to a bad start yesterday.

Interesting Chart of the Morning.

I noted above how Asian markets have been down sharply for a second week in a row, not attempting to recover from last week’s ugly week, while the U.S. market has at least been trying to recover.

It’s been a similar situation with emerging markets, which Wall Street has been assuring investors would be the place to be.

Emerging markets closed down sharply again this week, and are now down 14.5% from their high. That’s more than double the pullback in the S&P 500 of 5.7%.

Please scroll down to see other recent ‘Interesting Charts of the Morning’.

To read my weekend newspaper column from last weekend ‘Ganging Up On the Market’’ click here! It will be replaced with this week’s column later today.

NOTE: Although tomorrow is Saturday and markets will be closed I will be back in the morning, usually around 10 a.m., a little later than the normal 9:15 a.m., with a wrap-up commentary on whatever today’s market action turns out to be, and on the week, and an outlook for Monday and next week.

SUBSCRIBERS: The new issue of the newsletter is available on your website from Wednesday!

Non-subscribers: While it’s helpful to look at daily and short-term expectations, it is the intermediate and longer-term signals and market moves that are most important to investors. So, please consider a subscription to our independent research and recommendations. The cost is equivalent to the cost of two cups of coffee per week. Can you afford not to subscribe?

Street Smart Report Online provides our intermediate-term signals, outlook, and recommended holdings. Sectors, stocks, bonds, gold, short-sales, long-side and inverse etf’s and mutual funds. Highly regarded and in its 22nd year. In-depth weekly reports, newsletter, hotline, and much more! As a bonus for a one-year subscription you will also receive my latest book Beat the Market the Easy Way- Proven Seasonal Strategies That Double the Market’s Performance. Click here for subscription information.