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TheStreet Open House

The Berkshire Bump the Market Is Missing

OMAHA, Neb. (TheStreet) -- One of the many side effects of Warren Buffett's planned acquisition of Burlington Northern (BNI) is the rampant market chatter about Berkshire Hathaway's (BRK.B) likely addition to the S&P 500 Index. Should short-term traders be getting ready for a profit opportunity as a result of this impending index event?

Berkshire Hathaway announced this week that it will hold a Jan. 20 shareholder vote on a 50-1 stock split in its B shares. If approved as expected, the level of share would bring Buffett's investment company into compliance with a major S&P 500 requirement which it has never been able to previously satisfy: sufficient trading volume.

Being added to the S&P 500 is a historical achievement over which Warren Buffett has voiced previous ambivalence, if not outright reluctance. Still, many index mavens are expecting the S&P 500 inclusion to be a fait accompli once the stock split is executed.

If so, are Berkshire Hathaway's shares trading too low when analyzed in relation to the likely price bump it will receive from S&P inclusion?

At least one -- of the select group of analysts who cover the company, and academics who have studied the S&P 500 Inclusion Effect -- thinks the answer to this question is 'yes.'

Eric Lin, an assistant professor of finance at California State University and co-author with John Kensinger of University of North Texas of a soon-to-be-published research paper on the S&P 500 price bump, said short-term traders, in particular, will see an opportunity to profit from Berkshire Hathaway's the S&P 500 inclusion.

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