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Berkshire Hathaway Inc. New Common Stock (NYSE:BRK/B)
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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.
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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.
Interactive Brokers is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. You can buy assets from all around the world from the comfort of your home or office with access to over 150 global markets. Options, futures, forex and fund trading are also available, and most traders won’t pay a commission on any purchase or sale.
IBKR is geared primarily toward experienced traders and investors but now with the availability of free trades with IBKR Lite, casual traders can also acclimate to IBKR’s offerings.
Best For
- Access to international markets
- Active traders
- Detailed mobile app that makes trading simple
- Wide range of available account types and tradeable assets
- IB SmartRouting provides significant price improvement vs. industry
- Fractional trading allows investing regardless of share price
- Industry’s lowest margin rates
- Earn more by lending your fuly-paid shares
- Beginner investors might prefer a broker that offers a bit more hand-holding and educational resources
Magnifi is an intelligently designed marketplace that allows investors to access data-backed information about various investment opportunities. The company combines standard brokerage tools with artificial intelligence (AI) to promote financial competence. Magnifi distinguishes itself from the crowd by offering an AI-powered search feature and an AI-powered investment assistant. Magnifi offers a technology-forward platform that aims to promote confident and capable long-term financial investments.
Best For
- Long-term investors
- Individuals interested in personalized assistance
- New investors that are eager to learn how to start investing
- Access to an AI-powered investing assistant with a Magnifi Personal account
- Commission-free investing
- Over 15,000 possible investments
- Available mobile application
- Limited methods of communication with customer service
CenterPoint Securities is ideal for active traders who demand access to advanced tools and services. While investors and casual traders are likely to be content with the basic offerings of traditional online brokerages, active traders will benefit from CenterPoint’s suite of advanced trading tools. If you value execution quality, access to short inventory, advanced trading platforms, and accessible customer service, CenterPoint is an excellent choice.
Best For
- Intermediate to Advanced traders
- High-volume traders
- Momentum traders
- Short sellers
- Unrivaled access to short inventory
- Flexible order routing for improved executions
- Discounts for active traders
- Advanced platform with fast executions
- Reliable customer service
- Not designed for beginner or low-volume traders
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
Best For
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.
Best For
- Novice investors
- Retirement savers
- Day traders
- World-class trading platforms
- Detailed research reports and Education Center
- Assets ranging from stocks and ETFs to derivatives like futures and options
- Thinkorswim can be overwhelming to inexperienced traders
- Derivatives trading more costly than some competitors
- Expensive margin rates
Frequently Asked Questions
Is BRK a buy or sell?
Some investors believe that Berkshire Hathaway stocks are overvalued. Its C value score indicates that it’s a neutral pick. It’s possible that the share could consolidate in a range for some time before making significant price action.
Is it good to invest in Berkshire Hathaway?
Berkshire Hathaway has proven to be a stable stock that has provided year-on-year growth. Although Berkshire Hathaway doesn’t pay dividends, the company had a compound annual growth rate of 19.8% from 1965 to 2023. The S&P 500 provided 9.9% gains during the same period.
Should you invest in Berkshire Hathaway stock?
Whether to invest in Berkshire Hathaway stock is a decision that should be made after research and consideration of your financial situation and long-term financial goals. It is recommended to consult a financial adviser before investing in any type of security.
The post Berkshire Hathaway Class B Stock by Chika Uchendu appeared first on Benzinga. Visit Benzinga to get more great content like this.
