Berkshire Hathaway Class A vs. class B shares: an overview
Investors interested in buying Warren Buffett'sBerkshire Hathawayhas two options: Class A shares (BRK.A) and class B shares (BRK.B). The two types of shares each provide access to the famous conglomerate, but they have important differences.
The main difference between the two types of shares is their price. On July 17, 2023, the company's A shares closed at $523,500 per share. Compare that to the more affordable B shares, which closed at $344.25 on the same day.
Key learning points
- Berkshire Hathaway Class A is the company's initial public offering, known for its stratospheric price per share. stock.
- Berkshire Hathaway B shares, first issued in 1996, are more modestly priced and represent a correspondingly modest share of the company's stock value.
- There may be slight differences between the two in market performance, but the main difference is that Class B is affordable for retail investors.
The history of Berkshire and the introduction of Class B shares
Berkshire Hathaway was pleased with its highly valued share class. But the market demanded a cheaper, more common stock nibble from the Berkshire pie, as shares traded around $30,000 at the time.
Subsequently became Chief Executive Officer (CEO) in 1996.Warren Buffettand the board responded by issuing 517,500 shares. Job sharing. This made it possible for anyone interested to invest 1/30 in the companyethe price (and equity) of aA sharesfrom stock.A 50-to-1stock splitin 2010 the ratio moved to 1/1,500e, which means that each share of Class A stock can be converted into 1,500 shares of Class B stock at any time.
B shares also had correspondingly lower voting rights (1/200 of the voting rights for an A share).eof voting rights per stock. later changed to 1/10,000e) and Buffett marketed Class B shares as a long-term investment and as an open offering to avoid volatility due to supply issues.
On May 1, 2021, Vice Chairman Charlie Munger unofficially announced that Warren Buffett would staysucceeded as directorby Greg Abel as Buffett eventually steps down. Abel is CEO of Berkshire Hathaway Energy and Vice Chairman of Non-Insurance Operations.
Why 2 share classes?
The main reason Class B shares were introduced was to allow investors to buy the share outright rather than buying part of a share through this routeinvestment associationsor mutual funds that mirror those of Berkshire Hathawaycompanies. After all, the majority of individual shareholders simply cannot afford the sky-high price of a single A share. As of July 20, 2023, the stock closed at $526,130.
Buffett explained the action in his 1996 annual letter to shareholders:
“As I told you before, we sold this Class B in response to the threatened creation of mutual funds that would have marketed themselves as Berkshire lookalikes. In doing so, they allegedly used our past, and absolutely unrepeatable, record to lure naive retail investors and charged them innocently high fees and commissions.
If the shares were to remain in the hands ofinvestment associations, “Berkshire would be saddled with both hundreds of thousands of unhappy indirect owners (trustees, that is) and a tarnished reputation.”
Main differences
Buffett insists Class A shares will never see onestock splitbecause he believes the high share price attracts like-minded investors, those who focus on long-term profits rather than short-term price fluctuations.
In addition to being more accessible to retail investors, Class B shares offer the benefit of flexibility. If an investor owns only one Class A share and needs some cash, the only option is to sell that one share, even if the price far exceeds the amount he needs.
A holder of B shares, on the other hand, canliquidatea portion of their Berkshire Hathaway ownership up to the amount necessary to satisfycash flowrequirements. Class B also offers potentialtax benefit: The much lower price means Class B shares can be transferred to heirs without a triggergift taxthe way to pass on A shares does that too.
One final difference is that Class A shares can beconvertedeach time an A shareholder so wishes, in a corresponding number of B shares. Thatconversion rightthe reverse does not exist. Class B shareholders can only convert their holdings to Class A by selling their Class B shares and then purchasing their equivalent in Class A shares.
Pros and cons of Berkshire Hathaway A and B shares
Given the astronomical price of Class A shares, most investors have little choice about what kind of shares to buy if they're interested in Berkshire. For investors who are in a position to make a decision between investing in a smaller number of A shares or a much larger number of B shares, there are a number of pros and cons of each to consider.
Benefit
Historically, A shares have performed slightly better than B shares, but this is by no means a guaranteed outcome in the future. Please note that this may be due to different investor groups and market dynamics.
Class A shares also offer the convenience of a long-term investmentwithout a greater chance of a stock splitalong the line.
Investors looking for flexibility or without a lot of money have the option to invest in Berkshire's B shares. As such, someone looking to adjust their positions in Berkshire in a more granular manner will likely prefer this stock's dramatically lower price. With a similar investment in Class B shares, an investor has the option to sell part of his holdings to generate an artificial dividend or to better balance his portfolio.
Cons
One of the most obvious downsides to investing in the company is the price of the A share. There's really no way for the average investor to buy a single share of the company. Even invest in a mutual fund orexchange traded fund (ETF)holding Class A shares does not guarantee that you will receive the equivalent of a single share of that stock.
Because there is more flexibility in Class B shares than in Class A shares in Berkshire Hathaway, investors can expect a stock split in the future, diluting their interests in the company.
Benefit
A shares perform better than B shares
Long-term investment opportunity with A share
Class B shares offer more flexibility
Cons
Expensive A shares
Any stock splits in Class B shares may dilute ownership
Why doesn't Berkshire Hathaway split its stock?
Warren Buffet has stated that he would never split Berkshire Hathaway's Class A shares, even though they trade for nearly $530,000 per share. His reasoning is that he only wants to attract high-quality, long-term buy-and-hold investors (like himself) and discourage scalpers and day traders.Instead, Class B shares trade at a more reasonable price of $345 per share.
Why do some shares have 2 classes (A and B shares)?
Several companies offer more than one share class to the public. A shares generally provide more voting rights than other classes. This distinction is often only relevant for shareholders who play an active role in the company. However, because of the voting rights, A shares are often worth more than B shares. Some companies even have three or more share classes in certain special circ*mstances.
Can a shareholder convert Berkshire A shares into B shares?
Each share of Class A stock is convertible, at the holder's option, into 1,500 shares of Class B stock. B shares cannot be converted into shares of Class A stock.
How many Berkshire Hathaway shares are there?
There are 1.45 million shares of Berkshire Hathaway Class A (BRK.A) outstanding. At that time, there were more than 2.17 billion class B shares (BRK.B) dated July 20, 2023.
In short
As CEO, Warren Buffet helped Berkshire Hathaway become one of the most valuable companies in the world. The company's A shares are among the most sought-after shares in the world. That's because it has great value, but also a hefty price tag, putting it out of reach for the average investor. If you're looking for a way to reap the rewards of investing in the company, consider Berkshire's B shares. As with any investment company, make sure they align with your objectives and investment philosophy.
