Berkshire Hathaway Class A vs. Class B Shares: An Overview
Investors interested in buying shares of Warren Buffett's Berkshire Hathaway Inc behemoth have two options: Class A stock (BRK.A) or Class B stock (BRK.B). Class B shares offer a smaller slice of the company at a correspondingly small price per share.
On July 26, 2024, the company's Class A shares closed at an eye-watering $657,180 pershare. The Class B shares closed at $437.66 on the same day.
Key Takeaways
- Berkshire Hathaway Class A is the company's original stock offering, known for its stratospheric price per share.
- Berkshire Hathaway Class B shares, first issued in 1996, are more modestly priced and have a correspondingly modest share of equity value in the company.
- There can be minor differences between the two in market performance, but the key difference is that Class B shares are affordable to small investors.
Berkshire History and the Introduction of Class B Shares
Berkshire Hathaway was content with its highly valued single class of stock. But the market demanded a lower-priced nibble at the Berkshire pie, at a time when the shares were trading for about $30,000.
In 1996, Chief Executive Officer Warren Buffett and the board responded by issuing 517,500 shares of Class B shares. This allowed investors to buy shares for 1/30th of the price (and the equity stake) of a Class A share of stock.
A 50-to-1 stock split in 2010 sent the ratio to 1/1,500th, which means each share of a Class A common stock was convertible to 1,500 shares of Class B common stock.
Class B shares carry correspondingly lower voting rights as well. Class B shares now carry 1/10,000th of the voting power of Class A shares.
Buffett marketed Class B shares as a long-term investment and as an open-ended offering to prevent volatility as a result of supply concerns.
Charlie Munger, who was Warren Buffett's long-term partner at Berkshire Hathaway, died on Nov. 28, 2023, at the age of 99. His role at Buffett's side is now filled by Greg Abel, age 62, who has been named by the Berkshire Hathaway board as Buffett's eventual successor. Buffett is 93.
Why 2 Share Classes?
Class B shares were introduced to allow individual investors to purchase the stock directly instead of buying a sliver of a share through unit trusts or mutual funds that mirror Berkshire Hathaway's holdings.
Buffett explained the action in his 1996 annual letter to shareholders:
"As I have told you before, we made this sale [of Class B] in response to the threatened creation of unit trusts that would have marketed themselves as Berkshire look-alikes. In the process, they would have used our past, and definitely non-repeatable, record to entice naïve small investors and would have charged these innocents high fees and commissions."
If the stock was left in the hands of unit trusts, "Berkshire would have been burdened with both hundreds of thousands of unhappy, indirect owners (trust holders, that is) and a stained reputation."
Key Differences
Buffett insists that Class A shares will never undergo a stock split. He believes the high share price attracts like-minded investors focused on long-term profits rather than on short-term price fluctuations.
Along with being more accessible to retail investors, Class B shares investors some flexibility. If an investor owns just one share of Class A and needs some cash, the only option is to sell that single share even if its price far exceeds the amount of money they need.
Class B also provides apotential tax benefit: The lower price means that a moderate amount of Class B stock can be transferred to family members without triggering the gift tax, which is owed on gifts valued at more than $18,000 per recipient as of 2024.
One final difference is that Class A shares can be converted into an equivalent amount of Class B shares any time a Class A shareholder wishes to do so. The conversion privilege does not exist in reverse. Class B shareholders can only convert their holdings to Class A by selling their Class B shares and then buying the equivalent in Class A.
Advantages and Disadvantages of Berkshire Hathaway Class A and Class B Shares
Given the astronomical price of Class A shares, most investors do not have much of an option if they want to invest in Berkshire Hathaway.
For the lucky few who do have that option, there are a few pros and cons of each to keep in mind.
Advantages
Class A shares historically tend to slightly outperform Class B shares, though this is by no means a guaranteed outcome in the future.
Class A shares offer a long-term investment but little chance of a stock split down the line.
Investors looking for flexibility might prefer to invest in Berkshire's Class B shares. They can add to their stake or trim it from time to time without dealing in the six-figure numbers that a single Class A share represents.
Disadvantages
The most obvious drawback to investing in Berkshire Hathaway is the price of the Class A share. It's simply beyond the means of the average investor.
Even a mutual fund or an exchange-traded fund (ETF) that owns Class A shares won't get you the equivalent of a single share of this stock without a massive investment.
Because there is more flexibility in Class B shares than Class A shares of Berkshire Hathaway, investors may expect a stock split in the future, diluting their interest in the company.
Pros of Class B Shares
Same long-term growth potential as Class A shares
Affordable choice for an individual investor's portfolio
Greater flexibility for trimming or adding shares
Cons of Class B Shares
Slightly lower returns historically
Much lower voting power
Future stock splits possible
Why Doesn't Berkshire Hathaway Stock Split?
Warren Buffet has sworn that he will never split the class-A shares of Berkshire Hathaway. He says that he wants to attract only long-term buy-and-hold investors (like himself) and discourage scalpers and day traders.
He ultimately created Class B shares to make shares available to individual investors despite the sky-high price of Class A shares.
Why Do Some Stocks Have 2 Classes (A & B Shares)?
Class A shares typically grant greater voting rights than other classes. This difference is often only pertinent to shareholders who want to take an active role in the company.
Nevertheless, because of those voting rights, A-shares are often higher valued than B-shares.
Can a Shareholder Convert Berkshire A Shares Into B Shares?
Each share of Class A Common Stock is convertible, at the option of the holder, into 1,500 shares of Class B Common Stock. Shares of Class B Common Stock are not convertible into shares of Class A Common Stock.
How Many Berkshire Hathaway Shares Are There?
There are 1.45 million Berkshire Hathaway Class A (BRK.A) shares outstanding. There are more than 2.17 billion Class B Berkshire Hathaway (BRK.B) shares.
The Bottom Line
Berkshire Hathaway's Class A shares are among the world's most coveted stocks. But their hefty price tag puts them well out of the reach of the average investor.
If you're looking for a way to reap the benefits of investing in the company, consider Berkshire's Class B shares. As with any other investment venture, make sure they align with your goals and investment philosophy.
Investopedia does not provide investment advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circ*mstances of any specific investor, and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.
