Berkshire Hathaway A: Buy, Sell, Hold, or Convert?

Berkshire Hathaway (BRK.A) (BRK.B) is one of the most recognized companies on Wall Street, primarily because it serves as the investment vehicle for the legendary investor Warren Buffett. If you wish to invest alongside Buffett, you have the option to purchase one of two share classes of the company.

Most investors will likely opt for the B shares. However, when it comes to making decisions about the A shares—whether to buy, sell, hold, or convert—things get interesting.

Buying Berkshire Hathaway A Shares

If you have substantial financial resources, you might think about purchasing Berkshire Hathaway A shares. However, "substantial" might be an understatement, considering each A share is valued at over $748,000.

This means that if you want to buy just 10 shares, you'd need almost $8 million! It’s no surprise that the average daily volume of A shares traded is only around 1,500 shares. Thus, for most investors, the cost of a single A share is prohibitively high.

Nonetheless, if you do have the means, owning A shares can be a point of pride. Especially if you’ve held onto them for several years, it signifies that you recognized Buffett's investment prowess earlier than many others, likely resulting in significant capital gains. Still, while buying Berkshire Hathaway A shares is a viable option to invest alongside Buffett, only a select few will have the cash to do so.

Holding Berkshire Hathaway A Shares

If you already own Berkshire Hathaway A shares, there is generally no compelling reason to sell them. Buffett and his team are renowned for their remarkable long-term performance and a strategic investment approach. Additionally, the company boasts a substantial cash reserve, which it can utilize during market downturns when appealing investment chances are more abundant.

As long as you’re satisfied with Berkshire Hathaway's management, there’s no urgent need to part with your shares.

Selling Berkshire Hathaway A Shares

However, if you find yourself in need of cash, you may have to sell some stocks regardless of your preferences. In the case of Berkshire Hathaway's A shares, selling even one share can yield a significant return.

Another reason for selling could be your belief that Berkshire Hathaway's stock has become overpriced, as it is nearing all-time highs. You may also have concerns about the cash hoard that Buffett has accumulated; the company recently reported about $334 billion in cash and short-term investments on its balance sheet.

Leadership stability could also be a concern, as Warren Buffett may soon step away from daily operations. The recent passing of Charlie Munger, Buffett's partner, raises questions about future leadership. Even though the succeeding leaders are likely trained in Buffett’s approach, there's always uncertainty about how they will perform in his absence.

Converting Berkshire Hathaway A Shares

Berkshire Hathaway has a unique A/B share structure that offers a valuable option. Holders of A shares can convert them into 1,500 B shares.

This conversion feature has two significant implications. First, it ensures that the two share classes tend to trade in harmony with one another. Second, if you need to liquidate an A share for any reason, it may be more advantageous to convert it to 1,500 B shares and sell only the number of B shares you need to generate cash, or to adjust your overall exposure to Berkshire Hathaway. By doing so, you maintain a larger stake in the company while still accessing cash when necessary.

If you wish to completely divest your position, converting to B shares first may be more convenient, given that B shares are much more liquid (averaging around 3.9 million shares traded daily).

Is There a Wrong Time to Buy Berkshire Hathaway?

Berkshire Hathaway functions more like a mutual fund than a traditional company. When you invest in Berkshire, you’re essentially buying the investment expertise of Buffett and his team.

It's tough to assert that there's ever a bad time to engage a skilled investment manager. Nonetheless, considering that both the market and Berkshire's stock price are at near-record levels, there are valid reasons some investors may choose to sell.

The high price tag for A shares and the conversion option into B shares add complexity to the decision-making process around buying and selling, setting Berkshire apart from other companies. In essence, if you own A shares, you have an additional possibility to weigh alongside the basic buy, sell, or hold choices, as you can also convert to B shares. Utilizing this option can be an advantageous strategy that might fit your financial goals.

Berkshire, Buffett, Investing