Question:
What is the difference between buying A class shares and B class shares of a stock? I was fascinated to learn that Berkshire Hathaway’s B class shares are so significantly cheaper. Is that worth looking at?
Answer:
Generally, the difference between A class shares and B class shares pertain to voting rights. Often the people who control the company have a class of shares with voting rights that outweigh all others. Hershey Co. (NYSE: HSY) is known for creating a new class of shares so that the Hershey Trust could diversify their holdings. The trust forces the company to buy back the A class shares. Likewise, the Ford Motor Company (NYSE: F) also created a class of shares that had weighted voting rights. This is so the family could retain control of the company despite having the shares available on the stock markets.
As an investor, you, generally, don’t care as both A class shares and B class shares pay the same dividend.
As for Berkshire Hathaway, (NYSE: BRK), B class shares sell at 1/1,500 of the price of an A class share, which sells for around $175,000 a share. If the B class were to trade higher, A shares are converted to keep the price 1/1,500 of the A class shares. A class shares are convertible to B class shares at any time; however, B class are not convertible to A class shares. While B class shares of Berkshire Hathaway only have 1/10,000 the voting right of A class shares, investors of both classes are invited to the annual meeting. Warren Buffett, the investor behind Berkshire Hathaway, felt that a stock split resulted in more money given to attorneys than to shareholders. Therefore, he has never split Berkshire, which has resulted in such a high per-share price. One of the reasons he created the B class shares was to prevent anyone outside of his control from buying A class shares and selling them for less in a trust.
Berkshire Hathaway is a diversified holding company with a heavy concentration in financials and insurance. While Warren Buffett is certainly a savvy investor, we do not recommend owning shares of Berkshire Hathaway.
At Henssler Financial we believe you should Live Ready, which includes understanding the class shares you may own of a company. If you have questions regarding your investment strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
