Imagine if you owned a single Berkshire Hathaway A share worth over $600,000 only to go on line and find it was down 99%! It happened, sort of.
The New York Stock Exchange got it wrong, listing Berkshire Hathaway's (BRK.A -2.17%) (BRK.B -1.27%) A shares as having lost some 99% of their value. That didn't really happen, but that's what the ticker tape was saying (or online quote services in more modern parlance). Luckily it was just a technical issue and it was quickly remedied. But there's still an important lesson here for investors.
Berkshire Hathaway's big fall
In early trading on June 3, 2024 Berkshire Hathaway's A share class was listed as having declined by as much as 99.9%. Basically the "ticker tape" was showing that the A shares had become worthless, which doesn't make logical sense. The current understanding of what happened is that the Consolidated Tape Association had a problem and reverted to a backup system which didn't work quite as smoothly as hoped. In fact, Warren Buffett's Berkshire Hathaway wasn't the only stock that was impacted. It seems like NuScale Power (SMR -8.52%) and Barrick Gold (GOLD -5.34%) were mis-priced, as well.
Image source: Getty Images.
The Consolidated Tape Association is the entity that helps to keep track of all the trades that happen on Wall Street. It provides the real-time quotes that major quote services and brokers show on their websites and in applications. Years ago the ticker tape was a machine that listed the prices of trades as they happened and it required a direct feed from the exchange. We've made huge technological leaps since that device. But, still, the current mistake was a pretty public black eye for everyone involved given the prominence of Berkshire Hathaway's stock. But the problem was identified quickly (no shock there), trading in the affected shares was halted, and the issue was resolved. Berkshire Hathaway's A shares are now worth about what they were worth before the shocking, and erroneous, plunge.
As a shareholder in Berkshire Hathaway, or any stock impacted by the pricing mistake, you might feel a bit upset. That's understandable, given that a 99.9% drop in a $600,000 per share stock would probably be a devastating blow to one's finances. However, you need to give The Consolidated Tape Association and all of the companies that displayed the erroneous data a little leeway. The amount of pricing information that is created on Wall Street is staggering. The fact that the data is correct the vast majority of the time is a huge win. An occasional mistake should be taken with a grain of salt even if it is headline grabbing news.
Don't blindly trust the data
That brings up the really big lesson here. You have to consider the data you have in front of you within the broader picture. Or, to put it another way, does it make sense that Berkshire Hathaway's class A shares would become worthless in the blink of an eye? That answer is pretty clearly no.
But if that's what you were seeing, what should you have done? The first step would be to check with a second data provider, which in this case would likely have shown the same decline given the source of the problem. After that, and somewhat unique to Berkshire Hathaway, would be to look at the company's B share class, which wasn't impacted by the problem. At that point you could have breathed a sigh of relief.
But what about Barrick and NuScale, which don't have alternative share classes to look up? In that case you could go to the company's website to see if there was any shocking news that might logically explain the decline. If there's no news at the company's website, do a quick news search online. If there's still no news out there but you remain worried you can always check out the SEC filings form the company for any clues about what might be going on.
In this instance you would have come up empty-handed, for the most part, until news got out about the technical problem. And, once it did, you would have had a better handle on what was going on. But don't write this issue off so easily, data mistakes happen all of the time. Dividend payments, for example, often create problems that end up causing erroneous dividend yield data. That can happen when there's a dividend cut that isn't yet displayed in the data feed or when a special dividend gets annualized even though it is a one-time payment. Stock splits are another fairly common event that can cause havoc for data feeds.
Ask the right questions
Data mistakes creep into data sets all the time. The larger the data set, the greater the chance for error. Wall Street's pricing data feed is like a high-pressure fire hose that's been turned up past 10 and all the way to 11. And still, everything flows correctly most of the time. When you see something odd in the data, think of it as a small water leak in this analogy, you need to step back and ask some simple questions.
Is that stock that used to yield 3% really suddenly yielding 20%? Is a stock that was worth $600,000 yesterday worth pennies today? Probably not in both cases. A little homework and common sense would have told you that and saved your stomach from dropping into your feet.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and NuScale Power. The Motley Fool has a disclosure policy.
