Berkshire Hathaway Class B Stock

Warren Buffett’s multinational conglomerate company Berkshire Hathaway owns big corporations in various industries. Investors can reap the rewards of Berkshire Hathaway’s holdings by being direct owners of the company. Berkshire Hathaway has issued two classes of common stock shares — Class A and Class B.

The regular investor will opt for buying Class B shares because of the more affordable price. Several other distinctions between the two shares make the Class B stock more attractive. Benzinga delved into the history of the Berkshire Hathaway (BRK-B) stock and compared its benefits and features to Class A stock.

What is Berkshire Hathaway Class B Stock?

Berkshire Hathaway Class B stocks are a more modestly priced version of the company’s original stock. The high price of the company’s Class A stock had made the investment barriers to entry too high for most investors. Investors desired a lower-priced Berkshire Hathaway share.

To enable the everyday investor to own Berkshire Hathaway shares, CEO Warren Buffett issued 517,500 Class B shares. Owning these shares meant investing in the company at 1/30th of the price and equity of Class A shares.

A key reason for establishing Class B shares was to enable direct investments in Berkshire Hathaway instead of investors owning fractional shares in unit trusts that try to mimic the company’s holdings. Buffett stated that unit trusts would have lured novice investors by promising them replicated results of the company’s historical stock returns.

He also stated that the unit trust would have charged high fees and commissions but could not fulfill its promises of significant stock price returns. That would muddy Berkshire Hathaway’s reputation.

Berkshire Hathaway held a 50-to-1 stock split in 2010, resulting in Class B stock owners having the rights of 1/1,500th of Class A stocks. That action enabled owners of a Class A stock to convert it into 1,500 shares of Class B stocks.

The stock split also meant that Class B shareholders had 1/10,000th of the voting rights of Class A shareholders. Class B shares cannot sell for more than a small fraction above 1,500th of the price of Class A shares.

How Does Class B Stock Differ From Class A Stock?

The main difference between the two stocks is the price. Class A shares traded at $410,000 at the end of September 2022. Class B shares traded at $269 during the same period. Just over 1.3 billion Class B shares were outstanding. Only 599,000 Class A shares were outstanding at the end of September 2022.

Although Class A shareholders can convert their holdings into Class B shares, the conversion isn’t possible in the opposite direction. The only way for Class B shareholders to own Class A shares is by selling their holdings and then buying Class A shares.

Buffett has stated that he will never split Class A shares. Class B shares already had a stock split. He believes that Class A shares attract long-term investors who share his investing outlook. By not splitting Class A stocks, Berkshire Hathaway aims to deter day traders seeking short-term price volatility.

Class B shares are more beneficial to investors needing to liquidate their positions. Selling one share of Class A stock may provide investors with more cash than needed. But Class B shareholders can liquidate smaller positions, enabling them to acquire the desired amount of cash.

Tax benefits are more likely to flow to Class B investors. The lower value of Class B shares enables them to be passed down to heirs without incurring an inheritance or gift tax.

Investors wanting to have a say in the company’s direction would opt for Class A shares because they hold higher voting rights in business activities. Even by owning Class A shares, investors need a large holding to influence the company’s policies. But they are valued more because Class B shares provide 1/10,000th of the voting rights of Class A shares.

The performance of both stocks has been similar for many years, but market demand and other variables could result in different returns. Buffett has stated that different supply-demand could make Class B shares available at a discount. If Class B shares are at a bigger discount than 1%, then buying Class B could be a better option.

Why Buy Berkshire Hathaway Class B Stock?

Owning Class B stocks provides the regular investor with several benefits.

Lower Barriers to Entry

The average investor cannot afford to pay a $400,000 share price for one share in Berkshire Hathaway. Class B stocks are reasonably priced, enabling many investors to own a share of one of the biggest conglomerate companies in the world.

Taxes

The low price of Class B shares enables wealthy investors to pass their investments onto their heirs with less likelihood of incurring inheritance or gift taxes.

Liquidity

Class B shares have a high trading volume. Selling them is easier than Class A shares because of the higher liquidity. Also, selling Class B shares enables investors to liquidate only the amount of cash needed. Liquidating one Class A share may provide more cash than needed and affect price movement more.

Strategic Move by Buffett

Important takeaways are that Berkshire Hathaway's Class B stock offers an affordable option for investors to own a share of the company, breaking down barriers to entry and providing increased liquidity and potential tax benefits. While Class A shares offer higher voting rights, Class B shares are a practical option for those seeking to benefit from the company's performance. The establishment of Class B shares was a strategic move by Warren Buffett to enable direct investments in the company.

Compare the Best Online Stock Brokers

Investing in the most suitable class of shares and paying low commissions are best achieved with advice from the right broker. Benzinga discovered the best online stock brokers that can help you make the right investment.

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