Berkshire Hathaway's Class A Shares Cost About $766,000. Here's Why the Class B Shares Exist.
Key Points
Warren Buffett issued Class B shares when Class A shares became too expensive for the average investor.
Class B shares don't come with the same voting rights as Class A shares.
Class B shares were split 50-to-1 in 2010.
Before the days of the internet, there would be lists of stocks with their prices in the back of the newspapers every day. Prices were typically two or three digits, and one stock would stand out curiously with its four-digit price.
Decades later, Berkshire Hathaway's (NYSE: BRKA)(NYSE: BRKB) stock price has expanded to six digits as it outperformed the market. However, that's for Class A shares. There are also Class B shares, which trade at $510. Here's what the difference is.
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Why did Berkshire Hathaway issue Class B shares?
Warren Buffett took over Berkshire Hathaway in 1965 and turned it into a massive holding company, with shares trading for $36,000 each by 1995. Most companies split their stocks well before they get to that price. One great example is Walmart, which has split its stock 12 times. If it never had, one share would be worth $658,300 today.
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Buffett didn't want to split Berkshire Hathaway's stock because he targets long-term shareholders who would be invested in the company, not just its stock price. He considered himself a steward of their money and wasn't interested in shareholders who would trade for a quick profit.
The problem was that at a $36,000 price, Berkshire Hathaway stock wasn't accessible to many investors. At the time, there were securities companies that were looking to "clone" Berkshire Hathaway stock and sell it as a sort of index fund, where investors could buy a piece at a much lower price and then trade these pieces. Buffett issued the Class B shares to offer a different path into the investment for new shareholders, anticipating that the market would price both of them in tandem.
How do the shares differ?
Class B shares were issued in 1996 at one 30th of the price of Class A shares. They were split once, in 2010, when they had reached a price of $3,500. That split the stock into 50 pieces, again making it more accessible to more investors.
For most intents and purposes, there's no difference between the two classes besides the price tag. However, there are some practical differences. The main one is voting power. Class B shares originally had one 200th of the voting power of each Class A share, even though they were worth one 30th of the price. Class A holders also had the right to turn each share into 30 Class B shares, although not the other way around.
As of this writing, Berkshire Hathaway Class B shares trade at $510, approaching an inaccessible level. Today, investors can buy fractional shares through most platforms, but there could be another split in Berkshire Hathaway Class B shares sometime in the future.
Jennifer Saibil has positions in Walmart. The Motley Fool has positions in and recommends Berkshire Hathaway and Walmart. The Motley Fool has a disclosure policy.