Price – adjusted and unadjusted (Berkshire Hathaway)
The BBC business news recently posted a report about Warren Buffet’s Berkshire Hathaway that is a great example of the difference between adjusted and unadjusted prices. See Warren Buffett’s Berkshire Hathaway shares top $200,000, 15 August 2014.
The shares in Berkshire Hathaway surpassed $200,000 because Warren Buffet has never split the company’s class A shares. The class B shares are much cheaper because they have been split.
The screenshot below shows the adjusted price (P), unadjusted price (UP) and adjustment factor for Berkshire Hathaway class A (U:BRKA), class B (U:BRKB) and Google class A (@GOOGL). The Berkshire Hathaway class A shares have never been split so the price and unadjusted price are identical, while the class B shares were subject to a 50 for 1 stock split in January 2010.
The Berkshire Hathaway class A share/stock worth $87,900 on 31 December 2004 is the same as the one worth $188,124 on 31 July 2014. The class B share/stock worth $2,936 on 31 December 2014 is equivalent to 50 class B shares worth $125.43 on on 31 July 2014. The adjustment is always done historically so the class B share worth $125.43 on 31 July 2014 has an adjusted price of $58.72 on 31 December 2014.
- adjusted price (P) = unadjusted price (UP) * adjustment factor (AF)
- 58.72 = 2936 * (1 / 50)
The Google class A shares are very slightly different. The Google class A share/stock worth $192.79 on 31 December 2104 was “split” in April 2014 with shareholder getting one Google class C share for every class A share owned. The Google A share worth $579.5498 on 31 July 2014 has an adjusted price of $96.4885 on 31 December 2014. (The adjustment factor is not exactly 0.5 because of a small price difference between Google class A and Google class C stocks.)
The screenshot above is from a Thomson Reuters Datastream request table with 2 requests – the first producing annual values for the end-of-year from 2004 to 2104, and the second producing monthly, end-of-month, values for December 2013 to July 2014.
Both Berkshire Hathaway and Google are examples where the adjustment factor is less than 1 (adjusted price is less than the unadjusted price) but this is not always the case. The Price data in Datastream and Compustat post (researchfinancial blog, October 2104) has an example from American International Group where the adjusted price is much higher due to a consolidation (reverse split) in 2007.