News that it now costs more than $200,000 to buy a single share in Warren Buffett's investment vehicle, Berkshire Hathaway (BRK.A:NYSE), raises an interesting point about investment psychology and the errors individuals still make related to valuation.

I've heard private investors say they would not put money into a share that trades at £10, for example, adding that buying something trading at 10p or 20p would be much better value 'as you'd get so many more shares'. If you're investing a sum such as £10,000 equally into two different companies it doesn't matter if one trades at £10 and the other at 10p; you would still have £5,000 worth of stock in each. If they both rise by 10% in value in a year, your profit on both stocks would be the same at £500.

Valuation complexities

Many investors struggle to comprehend this situation. They simply look at the trading price and assume that a company whose stock is 10p is cheaper than one priced at £10. To make a proper judgement on valuation you need to look at metrics such as price to earnings (PE) multiples, price to net asset value (P/NAV) and enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA).

Novice investors may not be versed in such valuation techniques which is why publications such as Shares can be a valuable resource in explaining the complexities.

Owning a large number of lowly-priced shares could make you feel like you have a substantial holding. Yet the perceived low value of a penny share could also encourage you to take on extra risk. After all, a 20% fall in the value of a share originally priced at 10p may not seem too bad if you look at the 8p trading price and not the value of your total holding.

But imagine a 20% fall in a single Berkshire Hathaway share? That would knock $40,000 off its value to $160,000. You'd notice that in a flash. You would also feel the pain if you had $200,000 of stock in the penny share that went from 10p to 8p.

If you were looking to build a diverse portfolio, I'd wager that few people would have $200,000 worth of stock in a single company; they would spread their investment over lots of companies or funds. In that case, would Berkshire Hathaway be priced out of everyone's range? It's hard to imagine that individuals wouldn't want a piece of the vehicle most closely linked to one of the world's most famous investors.

Most companies in Berkshire Hathaway's situation would undertake a stock split, so that the price of a single share would be rebased (lower) and be more appealing to the broadest range of investors possible. In this case, Warren Buffett has previously dismissed a stock split, saying that taking actions focusing on stock price rather than business value attract an 'entering class' of buyers inferior to the 'exiting class' of sellers. Essentially he wants to attract long-term holders and not individuals more likely to trade on emotion.

Despite such comments, there's actually two classes of Berkshire Hathaway shares. The 'A' class shares are the higher-priced units and come with more voting rights than the cheaper 'B' class shares which were split as part of the cash and shares acquisition of rail freight group Burlington Northern in 2009. The 'B' shares - Berkshire Hathaway (BRK.B:NYSE) - presently trade at 'just' $135.25. That's still quite high, psychologically, if you've only got a few thousand pounds to invest.

The US market has lots of highly-priced stocks including transport conglomerate Seaboard (SEB:NYSE) at $2,930 per share and search engine giant Google (GOOG:NDQ) at $582.37. In comparison, the UK market has considerably lower pricing in general for companies and investment trusts, with investment collective Personal Assets Trust (PNL) at £340.55.

Priced out

But the same cannot be said about London-listed exchange-traded products. As the table shows they can be very pricey on a per unit basis with J.P. Morgan Macro Hedge Dual TR Source ETF (MHDX) at $16,171.

All pale in comparison to London football club Arsenal (AFC:ISDX) whose shares trade at an eye-watering £14,500 each on the ISDX market. I wouldn't touch that stock even if it was priced at 1p. Football clubs do not deserve a place on the stock market. They are not properly-run businesses; they are merely entities that fritter money away, pay excessive salaries and rarely have consistent leadership. Sadly that describes many listed companies.