Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) is an iconic name on Wall Street. The company's CEO Warren Buffett is by any definition an investing legend, generally referred to as the Oracle of Omaha. Given the strong long-term performance of the company, investors often place a high value on the stock.
There are two ways to own Berkshire Hathaway stock. Here's why only one will be an option for most investors.
Berkshire Hathaway's performance is incredible
Interestingly, when Berkshire Hathaway was acquired by Warren Buffett it made clothing. That business turned out to be pretty bad and was eventually shut down, but the name survived. Buffett and his partner Charlie Munger essentially turned the one-time apparel maker into an investment vehicle with which they acquired other businesses.
BRK.A Total Return Level data by YCharts
As the chart above shows, Berkshire Hathaway shareholders have made out very well despite the inauspicious beginnings. Beating the market by such a large degree and for so long is not an easy task. That is part of the problem for investors looking to own the stock. For a very long time there was just a single share class, the one now designated as the A shares. Given the company's success, few people sold the stock. The company didn't split the shares either, so the price just kept going up and up.
At this point, buying a Berkshire Hathaway A share will set you back ... wait for it ... over $528,000. The share price of most publicly traded companies would be a rounding error for Berkshire Hathaway's stock price. Also important, the volume of shares sold is really small, around 7,800 on an average day. So the A shares are also fairly illiquid. Berkshire Hathaway A shares are simply out of reach for most investors.
Image source: Getty Images.
How about a fractional share instead?
This is where Berkshire Hathaway B shares come in. This stock represents ownership in Berkshire Hathaway, like the A shares, but it takes 1,500 B shares to equal a single A share. That brings the price down to a mere $348 or so. And the daily volume averages around 3 million shares, so they are much more liquid. In other words, you actually stand a chance of buying a B share.
What's important to highlight, however, is that they both represent ownership of the same company. You get all of the investing wisdom of Warren Buffett and Charlie Munger, and the folks that help them. You get the portfolio of stocks the company owns, which includes iconic names like Coca-Cola and American Express, among many others. You also own stakes in the massive businesses contained within Berkshire Hathaway, which span across insurance, energy, and railroads.
The only difference is that an A share is worth 1,500 B shares. That said, even if you could afford an A share, you still might not want to buy one. For most human beings, buying something worth half a million dollars would tie up a huge portion of their net worth. If you needed to raise a little cash quickly, you couldn't do it with an A share. You'd have to sell the whole share or convert it into 1,500 B shares. With the lower-priced B shares, however, you could sell a handful of shares to raise the money you needed, keep the rest of your position, and avoid the complication of converting A shares to B shares. From a functional point of view, the B shares are a much simpler option.
Small is beautiful when it comes to Berkshire Hathaway
Berkshire Hathaway didn't always have a B share option for investors. You either bought the A shares or you watched from the sidelines. Adding the extra share class opened up the stock to a whole new group of shareholders. And if you are looking at Berkshire Hathaway, the chances are the less expensive B shares will be the ones you will want to own. That might simply be a matter of the more accessible share price, or the benefit of not tying up massive amounts of your wealth in each A share.
