11/20/2018 - Economy and Finance

What is the difference between Class A and Class B actions of Berkshire Hathaway?

By finguru

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The main difference between the two types of actions is their price. From November 2018, Berkshire Hathaway Class A is the trade of about US$ 329.665 per share, compared to $220 for class B actions. But there are also other distinctions, and we will explore them next.

Berkshire history and introduction of Class B actions

For more than 20 years, the company was happy with its unique and highly valued stock class. But the market demanded a lower and more common bite on the Berkshire cake, as the shares were quoted for about $30,000 at that time. So, in 1996, Warren Buffett, CEO of Berkshire Hathaway, and the directory responded by issuing 517,500 Class B (BRK-B) shares, offering the ability to invest in the company by initially 30% of the price (and social capital) of a Class A action A share division of 50 to 1 in 2010 sent the relationship to one-1,500. Class B shares also had lower voting rights (a two hundredth share of voting rights per share), and Buffett traded Class B shares as a long-term investment and as an open offer to avoid volatility as a result of supply concerns.

The main reason for the introduction of Class B actions was to allow investors to purchase the shares directly instead of having to go through unitary trusts or mutual funds that reflect the needs of Berkshire Hathaway. Buffett explained this as follows in his 1996 annual letter to shareholders: "As I told you before, we made this sale in response to the threat of creating trust of units that would have been marketed to themselves as similar to Berkshire. In the process, "it would have used our past record, and definitely not repeatable, to attract small naive investors and would have charged these high fees and innocent commissions." If the action was left in the hands of the unit's fideicomissions, "Berkshire would have been loaded with hundreds of thousands of proprietary, indirect (i.e., fideicomissary) owners and a spotted reputation."

Differences between actions A and B

Unlike Class B actions, which were split in 2010 and could split again, Class actions A in Berkshire will never experience the same phenomenon. Buffett stated that Class actions They will never suffer a division of shares because they believe that the high price of shares attracts investors with similar ideas, which focus on long-term benefits rather than short-term price fluctuations.

In addition to being more accessible to retail investors, Class B shares provide the benefit of flexibility. If an investor has only one Class action A and needs something effective, the only option is to sell this individual action, even if its price far exceeds the amount of capital you need to access. In contrast, a fork of actions Class B can liquidate part of your experiences in Berkshire Hathaway up to the amount needed to meet the cash flow requirements. Class B also provides a potential tax benefit . Its much lower price means that the BRK-B actions can pass to the heirs without activating the donation tax as Class A actions do.

One last difference is that Class actions A can become an equivalent amount of Class B actions at any time when a Class Shareholder You want to. The privilege of conversion does not exist otherwise. Class B shareholders can only convert their participations in Class Selling your Class B shares and then buying the Class A equivalent.

A and B: Pros and Cons

Given that Class actions Berkshire has a price of over 300,000 dollars each and that a division of this class of shares is extremely unlikely (and which is a dramatic decrease in prices), most investors do not have an option of what kind of shares. share to buy if they are interested in buying in Berkshire. For investors able to make a decision between investing in a smaller number of Class actions A or a much larger number of Class B actions, there are some advantages and disadvantages of each to take into account.

When it comes to pure income, there may be a difference between Class A and Class B actions, although both represent a share in the same company. It is likely that the dynamics of the market and the different groups of investors are the main reason for this, but it is worth noting that there could be performance decisions included in a comparison of the two types of actions. Historically, Class actions They have tended to slightly overcome Class B actions, but this is in no way a guaranteed result in the future.

The main pros and cons of each type of participation have to do with the previously illustrated differences. Investors looking for flexibility or without a large amount of money to invest in Berkshire will likely opt for Class B actions; someone looking to adjust their participation in Berkshire in a more granular way will likely find that the price of Class B shares at much lower prices is more favorable. With an equivalent investment in Class B stocks, an investor has the opportunity to sell a part of his tenures to generate an artificial dividend or to better balance his portfolio, compared to the same investment in Class A stocks. On the other hand, Class actions The offer the convenience of a long-term investment without much possibility of an action split into the line. Still, a possible future division of Berkshire stocks.

Source: Investopedia

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