Berkshire Hathaway: Class A or Class B?
Let's say you have at least $682,500 (congrats! 🎉) and you're eyeing a slice of Warren Buffett's empire, Berkshire Hathaway. But here comes the big question: Is it better to invest in Class A or Class B shares? It's not just about affordability; it's about making a wise choice for your investment portfolio. Join me as I dive into a comparison of these two share classes, and help you to decide.
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Class A
In my opinion, when the B shares are at a discount of more than 1%, it offers a better buy than the A shares.
- Warren Buffett
Source: Berkshire Hathaway; CLASS A VS. CLASS B STOCK; January 20, 2010Live Analysis
Let's compare the current market prices. One share of Class A is $682,500 (BRK-A), and one share of Class B is $453 (BRK-B).
Warren recommends buying B when it's cheaper than 1% of A. The discounted price of A is $675,675.
Each class B share is 1/1500th of a Class A share. So, when we multiply the B shares, we get $679,800.
This means that Class A is $2,700 cheaper, which is 0.40% cheaper.
Therefore, Warren recommends buying Class A today.
Key Differences
The main difference between Berkshire Hathaway's Class A and Class B shares is in their price and voting rights. While Class A shares are much more expensive and offer full voting rights, Class B shares are more affordable with reduced voting rights. However, I'm not particularly concerned about voting power, so the reduced voting rights of Class B shares aren't a significant issue for me.
Class A
Pros of Class A Shares: These shares offer higher voting power, appealing if you're looking for more influence in corporate decisions. Additionally, they tend to have lower trading volumes, which can result in less price volatility.
Cons of Class A Shares: The major downside is their high cost. This high price also makes them less liquid compared to Class B shares.
Class B
Pros of Class B Shares: More affordable and accessible. They also offer greater liquidity due to their lower price.
Cons of Class B Shares: The main drawback is their reduced voting rights. While this might be a concern if you're interested in having a say in company decisions, it's less relevant if voting power isn't a priority for you. Be aware, though, that these shares may experience higher volatility due to their higher trading volumes.
What is the difference in voting rights between Class A and Class B shares?
Class A shares provide full voting rights, which means more influence in company decisions. In contrast, Class B shares offer reduced voting rights, suitable if voting power isn't a major concern for you.
Can Class A shares be converted into Class B shares?
Yes, Class A shares can be converted into Class B shares, but not the other way around. This conversion can be beneficial for seeking increased liquidity typically associated with Class B shares.
Are there any dividend differences between the two classes of shares?
No, both Class A and Class B shares receive the same per-share dividend. The main differences lie in price, liquidity, and voting rights, not in dividend payments.
Is there a difference in investment risk between Class A and Class B shares?
The investment risk is generally the same for both Class A and Class B shares since they both represent ownership in Berkshire Hathaway. However, the lower price of Class B shares might make them more accessible and less financially burdensome for individual investors.
Isn't it better to just buy S&P 500 index funds?
It's a valid consideration. I primarily invest in index funds for the broad market exposure and the benefits of a passive investment strategy. However, I also own Berkshire Hathaway shares because I believe they have the potential to outperform an index fund, particularly in a market dominated by passive investing. This approach allows me to enjoy the stability of index funds while also seeking the possible higher returns and strategic advantages of holding Berkshire shares.
Gabor Herget
With a background in technology rather than finance, my journey into the world of investing was unconventional. As a co-founder of a software company, I honed my skills in business and finance, eventually scaling the business to over ten million in revenue. This experience, coupled with my passion for studying the strategies of successful investors, shaped my approach to managing capital. After selling the business, I turned my focus to investment, applying the lessons I've learned along the way.
To discover more about my journey and insights, visit my about page or follow my updates on Twitter.
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