Berkshire Hathaway Class A vs Class B Shares
Understanding the key differences between Berkshire Hathaway's two share classes.
Understanding Berkshire Hathaway’s Two Share Classes
Berkshire Hathaway Inc., the multinational conglomerate led by renowned investor Warren Buffett, offers investors two distinct classes of common stock: Class A and Class B shares. Each share class represents an ownership stake in the company, but they differ significantly in price, voting rights, and accessibility. Understanding these differences is crucial for investors deciding which shares best align with their investment strategy and financial goals.
The Price Difference: A 1,500-to-1 Ratio
The most obvious distinction between Berkshire Hathaway’s two share classes is their dramatically different price points. Class A shares trade at substantially higher prices than Class B shares, following a precise 1-to-1,500 ratio. This means that one Class A share is mathematically equivalent to 1,500 Class B shares in terms of economic value.
As of recent market data, Class A shares trade at approximately $557,075 per share, while Class B shares trade at around $367.44 per share, maintaining this consistent ratio. Both share prices move in tandem, rising and falling together while maintaining their proportional relationship. This tight correlation ensures that investors cannot exploit price discrepancies between the two share classes for arbitrage opportunities, with the possible exception of minor deviations that quickly correct themselves through market mechanisms.
The price ratio between the two share classes was established when Berkshire Hathaway first issued Class B shares. In January 2010, the company executed a 1-for-50 stock split of its Class B shares, which restructured the relationship between Class A and Class B shares. After this split, each Class B share represented 1/1,500th of a Class A share, down from the previous ratio. This adjustment made Class B shares significantly more affordable for average investors while maintaining the relative value between the two classes.
Ownership Rights and Economic Equivalence
Beyond the price difference, Class A and Class B shares are economically equivalent in most respects. When you purchase either class of share, you acquire an ownership stake in Berkshire Hathaway. One Class B share represents exactly 1/1,500th of the economic ownership that one Class A share represents.
If Berkshire Hathaway were to declare and pay a dividend to shareholders—which historically it has not, as the company reinvests profits—the dividend paid to Class B shareholders would be precisely 1/1,500th of the dividend paid to Class A shareholders. This mathematical relationship ensures that the economic value of both share classes remains perfectly proportional to their price ratio.
This economic equivalence is the reason why Berkshire Hathaway was able to create Class B shares without diluting the claims of existing Class A shareholders. Class B shares simply divided the economic ownership pie into smaller, more accessible slices.
Voting Rights: A Significant Disparity
While Class A and Class B shares maintain economic parity, voting rights present a notable exception to this equivalence. This is where the two share classes diverge most significantly from an investor governance perspective.
Class B shareholders possess only 1/10,000th of the voting power that Class A shareholders enjoy. This is substantially less than the 1/1,500th economic equivalence. In practical terms, this means that if you invest an equivalent dollar amount in both share classes, you will receive approximately 6.66 times more voting power from Class A shares than from Class B shares.
However, this voting rights disparity has minimal practical implications for most individual investors. Berkshire Hathaway is such a large company with millions of outstanding shares that individual retail investors—and even institutional investors—would need to own an enormous number of shares to influence company decisions. For the vast majority of shareholders, the difference in voting rights is largely theoretical rather than practical.
The reduced voting power of Class B shares was an intentional design choice by Berkshire Hathaway’s management. By limiting voting rights on the cheaper Class B shares, the company discouraged the formation of large voting blocs among smaller retail investors while keeping the shares accessible and affordable.
Convertibility: A One-Way Street
An important feature distinguishing the two share classes is their convertibility structure, which operates in only one direction. Class A shareholders enjoy the privilege of converting their shares into Class B shares at any time at their sole discretion. When you convert one Class A share, it automatically becomes 1,500 Class B shares, maintaining the precise economic ratio between the two classes.
However, this conversion privilege is strictly one-way. Class B shareholders cannot convert their shares into Class A shares. The only way for Class B shareholders to change their holdings into Class A shares is to sell their Class B shares on the open market and then purchase Class A shares separately. This asymmetrical convertibility structure has important implications for investors.
The one-way convertibility creates a natural price floor for Class B shares. The price of Class B shares can never exceed 1/1,500th of the Class A price by more than a negligible amount. If Class B shares were to rise above this ratio, arbitrageurs could exploit the opportunity by purchasing Class A shares and converting them into Class B shares, which would restore the 1-to-1,500 ratio. However, because Class B shares cannot be converted back to Class A shares, they can and do trade at a discount to the 1/1,500th ratio when market demand dictates.
Performance Comparison
Despite their structural differences, Class A and Class B shares have delivered nearly identical investment performance over the long term. Historical analysis shows that both share classes have appreciated at virtually the same rate, tracking extremely closely to each other since the inception of Class B shares.
Since 1997, when comprehensive historical data became readily available, Class B shares have actually performed marginally better than Class A shares, with compound annual growth rates of approximately 10.82% compared to 10.79% for Class A shares. However, this tiny performance advantage is likely attributable to normal market fluctuations and trading dynamics rather than any fundamental difference in the underlying businesses or investment quality.
The near-identical performance makes sense from an economic perspective. Since both share classes represent proportional ownership of the same company with identical dividend treatment (when dividends are paid), they should move in tandem. Market participants quickly correct any significant deviations from the expected ratio, ensuring that both share classes deliver equivalent returns to investors who hold them for extended periods.
Factors to Consider When Choosing Between Share Classes
Voting Power Considerations
For investors who value governance participation and voting rights in their investment holdings, Class A shares represent the superior choice. If you own a significant number of shares and wish to exercise voting influence at shareholder meetings or proxy contests, Class A shares provide substantially greater voting power per dollar invested. However, for typical individual investors, this consideration is largely irrelevant.
Flexibility and Liquidity
Class B shares offer considerably more flexibility for managing your investment holdings due to their significantly lower price point. If you need to raise cash for unexpected expenses or wish to trim your position, Class B shares allow you to sell smaller amounts incrementally. For example, if you need $10,000 and own Class B shares trading at approximately $367, you can sell roughly 27 shares to raise your needed capital. In contrast, if you own Class A shares trading at $557,075, you would need to sell an entire share to raise far more capital than needed, creating inefficiency.
This flexibility extends to estate planning and wealth transfer. Class B shares can be more practical for passing investment holdings to heirs or family members without triggering substantial inheritance or gift tax consequences, since you can transfer smaller quantities of shares rather than whole Class A shares.
Conversion Advantage
Class A shareholders possess a built-in option value from their ability to convert into Class B shares. This conversion right allows Class A shareholders to potentially profit from relative price discrepancies or to adjust their holdings for personal reasons without entering the open market to buy or sell.
When to Choose Each Share Class
Choose Class A Shares When:
You should consider Class A shares if voting rights hold importance to your investment philosophy, or if you anticipate eventually accumulating enough shares to exercise meaningful governance influence. Class A shares are also appropriate if you have substantial capital to invest and prefer holding fewer, higher-priced shares rather than managing large quantities of lower-priced shares. Additionally, the conversion privilege embedded in Class A shares can provide strategic value.
Choose Class B Shares When:
Class B shares are generally more suitable for most individual investors. Their lower price point makes them more accessible and allows greater flexibility in managing positions. Class B shares are ideal if you need to make incremental investments or occasional withdrawals, or if you plan to pass shares to heirs. For investors who don’t need voting participation, Class B shares deliver identical economic performance with superior practical convenience.
Warren Buffett’s Perspective on the Two Share Classes
Warren Buffett himself has provided guidance on when investors should choose one share class over the other. Buffett has stated that in his opinion, when Class B shares trade at a premium (not a discount), or at parity with Class A shares relative to the 1/1,500 ratio, investors should generally favor Class A shares for large purchases.
Buffett’s principle: “In my opinion, again, when the B is at a discount of more than say, 1%, it offers a better buy than the A. When the two are at parity, however, anyone wishing to buy 1,500 or more B should consider buying A instead.” This guidance reflects Buffett’s view that for investors purchasing 1,500 or more Class B shares (equivalent to one Class A share), Class A shares become the more logical choice from a value perspective.
Most of the time, Class B shares trade at approximately 1/1,500th of the Class A price. However, periodic supply and demand imbalances can cause Class B shares to trade at a discount to this theoretical ratio. Alert investors can occasionally identify situations where Class B shares offer superior value, particularly when discounts exceed 1%.
The Stock Split History and Future
Berkshire Hathaway has a limited history of stock splits. The company executed one notable split of Class B shares: in January 2010, it performed a 1-for-50 stock split synchronized with the company’s acquisition of Burlington Northern Santa Fe (BNSF), a major railroad company. This split reduced the price of Class B shares from approximately $3,286 to $76, making them significantly more accessible to individual investors.
Berkshire Hathaway has explicitly stated that Class A shares will never be split. Warren Buffett has explained that the high price of Class A shares serves an important purpose by attracting long-term, serious investors focused on fundamental value rather than short-term trading. Class B shares may potentially undergo another stock split in the future if economic circumstances warrant it, though no such split is currently planned or announced.
Conclusion: Making Your Investment Choice
Both Berkshire Hathaway Class A and Class B shares represent quality ownership stakes in one of the world’s most successful investment companies. The choice between them depends primarily on your personal circumstances, investment philosophy, and practical preferences rather than on fundamental performance differences.
For most investors, Class B shares offer the superior practical solution due to their lower price, greater flexibility, and sufficient economic equivalence to Class A shares. The reduced voting rights matter little for typical shareholders. However, investors who value governance participation or anticipate significant capital appreciation should seriously consider Class A shares.
Understanding these distinctions empowers you to make an informed decision aligned with your unique investment needs and circumstances.
Frequently Asked Questions
Q: What is the price ratio between Berkshire Class A and Class B shares?
A: Class A shares maintain a 1-to-1,500 ratio with Class B shares. One Class A share is economically equivalent to 1,500 Class B shares, and their prices move in tandem to maintain this relationship.
Q: Can I convert Class B shares into Class A shares?
A: No, convertibility only works in one direction. Class A shareholders can convert into Class B shares anytime, but Class B shareholders cannot convert into Class A shares. The only way to change from Class B to Class A is to sell your Class B shares and purchase Class A shares separately.
Q: Which share class has better investment performance?
A: Both share classes have delivered nearly identical performance historically. Since 1997, the performance difference has been negligible, with Class B showing a marginally higher compound annual growth rate of approximately 10.82% compared to 10.79% for Class A shares.
Q: What is the voting rights difference between the two share classes?
A: Class B shareholders have 1/10,000th of the voting rights that Class A shareholders possess. This means Class A shareholders enjoy approximately 6.66 times more voting power per dollar invested, though this difference is largely theoretical for individual investors.
Q: When should I buy Class A shares versus Class B shares?
A: Class B shares are ideal for most individual investors due to their lower price and greater flexibility. Choose Class A shares if you value voting rights, plan to purchase 1,500 or more Class B shares, or want to take advantage of the conversion privilege. Alternatively, consider Class B if they trade at a discount exceeding 1% relative to Class A.
Q: Will Berkshire Hathaway ever split its Class A shares?
A: No. Warren Buffett has explicitly stated that Class A shares will never be split. He believes the high price attracts serious, long-term investors. Class B shares might undergo future splits if economic conditions warrant it.
References
- How Berkshire Hathaway’s Class A and Class B Shares Are Different — Stock Analysis. 2024. https://stockanalysis.com/article/berkshire-class-a-and-class-b-stock/
- Class A vs. Class B Stock – Berkshire Hathaway — Berkshire Hathaway Inc. Official Resources. https://brkshr.com/class.html
- What’s the difference between Berkshire Hathaway Class A and Class B shares — Hatch Invest. 2024. https://help.hatchinvest.nz/en/articles/3472241-what-s-the-difference-between-berkshire-hathaway-class-a-and-class-b-shares
- Berkshire Hathaway Class A vs. Class B — Investing.com Academy. https://www.investing.com/academy/stock-picks/berkshire-hathaway-class-a-vs-class-b/
Similar Articles
Read full bio of Sneha Tete
