Investors seeking to invest in Warren Buffett’s Berkshire Hathaway have two options: Class A (BRK A) and Class B stock (BRK B). Each type of share gives investors access to the famous conglomerate, but the two have important differences. Let’s find out in this BRK A vs BRK B roundup.
The differences between these two assets include the following:
- A conversion feature vs the lack thereof
- The traded price of those shares
- The possibility of splitting vs not having that possibility
BRK A vs BRK B: The Conversion Feature
BRK A has a conversion feature that includes converting into BRK B shares anytime shareholders want. They can convert them into the same amount of Class B shares whenever they want. However, BRK B shareholders can’t alter their shares into Class A shares.
Since both shares have the same rights, this feature may not matter to many shareholders. Otherwise, BRK A shares may have a small outperformance.
BRK A vs BRK B: The Trading Price
On Dec. 31, 2021, BRK A closed at $454,400 per share. However, BRK B closed at $301 per share.
BRK A vs BRK B: The Possibility of Splitting
The Class B shares split in 2010 and may split again. Buffett stated that the Class A shares won’t ever experience a stock split. These investors focus on the long-term, not the short-term.
BRK A vs BRK B: Flexibility
In addition to being more accessible to retail investors, BRK B shares provide more flexibility. So, if an investor needs cash and they own only a share of Class A, this person can only sell that share. This is even the case if the prices exceed the amount of cash they need to access.
On the other hand, a BRK B shareholder can access their cash flow needs only by liquidating part of their shares. As a result, class B prices are much lower to pass on to their heirs without the gift tax. Class A, however, would require a gift tax.
Besides that, Berkshire shares have equal rights to voting, stock equity, and dividends. Also, please note that investors desiring to purchase Warren Buffett’s Berkshire Hathaway shares only have two options. These options are Berkshire A and Berkshire B.
The History of Berkshire and the Introduction of its Class B Shares
Over 20 years ago, Berkshire Hathaway was happy with only having a single class of stock. However, the market demanded a more familiar and lower-priced stock from Berkshire’s estate. This is true since shares traded at approximately $30,000 at that time.
So, Warren Buffet, the CEO of Berkshire Hathaway, and the board started offering to issue 517,500 Class B shares in 1996. This type of share allowed people to initially invest 3% of the price and equity of its class A stock share.
In 2010, the price nosedived drastically due to a 50-to-1 stock split. The ratio was 1/1,500th, thus allowing the convertibility of a Class A common stock at any time to 1,500 shares of Class B common stock.
There were lower voting rights for Class B stocks. Also, Class A shares voting rights at 1/200th of the per-share voting rights changed to 1/10,000th. Class B shares were marketed as an open-ended offering and a long-term investment. These allowances were made to prevent volatility.
Then on May 1, 2021, Charlie Munger, the vice-chairman of Berkshire Hathaway, made an unofficial announcement. He said that Greg Abel would succeed Warren Buffet as CEO when Buffet steps down. However, Buffet recently stated in April 2022 that he isn’t stepping down. Abel is the vice-chairman in charge of noninsurance operations and the CEO of Berkshire Hathaway Energy.
BRK A vs BRK B: Pros and Cons
|Outperform Class B shares||They don't guarantee a great outcome in the future.
|Offer the convenience of a long-term investment without much possibility of a stock split down the line||With the current price of Class A shares currently priced near $500,000 each, these shares are not feasible for most investors|
|Excellent choice for investors looking for flexibility||The Class B shares may split again|
|No gift tax is required when passing funds on to heirs||They tend to underperform slightly more than Class A shares|
|BRK B shareholders can only access their cash flow needs by liquidating part of their shares|
When it comes to pure performance, there can be a difference between Class A and Class B shares, even though they both represent a stake in the same company. Market dynamics and differing pools of investors are likely to be the primary reason for this. Still, it is worthwhile to note that performance decisions could be included in comparing the two types of shares.
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 is affordable to small investors.