If you’re looking to invest in Berkshire Hathaway (and, let’s face it, we really can’t blame you), then you’re probably wondering what is the difference between Berkshire Class A and Class B stocks. The short answer is price.
Berkshire Hathaway stocks hold two important records: they are the most expensive stocks on the market, and are the only stocks that are not regularly split. In fact, at the time of writing, Berkshire Class A stocks were valued at around $246,500 per share. Class B stocks, by comparison, were valued at around $164 per share.
But before we can get into explaining why the two stocks have such a different price, we’ll have to look at why there are two stocks to begin with.
The Creation of Baby B’s
When Berkshire was first listed on the market, it only had one stock. In an attempt to attract like-minded investors and stem the flow of people simply buying and selling to make a quick buck, Buffett refused to split the stock. So, as Berkshire’s profitability continued to rise, so did the price of its stocks.
By 1996, a single share of Berkshire cost around $20,000. This prohibitive price stopped many investors from being able to take part in Berkshire’s success. So, an entrepreneurial investor named Samuel Katz, decided to create a “unit investment trust” and basically lease out the rights to small pieces of Berkshire stock. Buffett, upset at the idea, decided to create a second, less expensive stock to prevent this from happening.
In his 1996 letter, Buffett explained the decision:
“…We made this sale in response to the threatened creation of unit trusts that would have marketed themselves as Berkshire look-alikes. In the process, they would have used our past, and definitely nonrepeatable, record to entice naive small investors and would have charged these innocents high fees and commissions.”
In short, it would have tarnished Berkshire’s stellar reputation and caused Buffett quite a huge headache. So, he split some Class A stocks into 30 equal pieces and labeled them Class B. These lesser stocks are designed to be more accessible, and are not allowed to value above a certain amount, keeping the cost down.
Class A versus Class B Stocks
As mentioned above, the most obvious difference between the two is the price. One is six figures per share while the other is usually less than $300 per share. However, the stocks also have a few other differences.
When the Class B stocks were originally created, they were worth 1/30th of a Class A stock and held 1/10,000th of the voting rights. That means a Class B voter would have to hold 10,000 shares for their votes to have the same weight as a single Class A shareholder.
However, in 2010, Buffett split the stocks again to help pay for the acquisition of BNSF. Right now, the Class B stocks are valued at 1/1500th of a Class A. They retained the same voting rights, however.
Both Class A and Class B stock holders can attend the Berkshire Hathaway Shareholder’s Meeting and both can vote on shareholder issues although, as mentioned above, Class B voters will have less voting power than Class A.