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

Berkshire Hathaway (BRK.A 2.87%) (BRK.B 2.27%) is a prominent player on Wall Street, mainly because it is the investment hub for famous investor Warren Buffett. If you aspire to invest alongside Buffett, you can choose between two share classes of the company.

For most investors, the straightforward choice would be to purchase the B shares. But what should you do with the A shares? Let’s explore the options of buying, selling, holding, or converting them.

Buying Berkshire Hathaway A Shares

If you have substantial financial resources, you might consider investing in Berkshire Hathaway A shares. Substantial is an understatement, given that each A share costs over $748,000.

This means buying just 10 shares requires almost $8 million. This high price explains why the average daily volume of A shares traded is around 1,500 shares. Thus, owning a single A share is beyond the reach of most investors, let alone acquiring several.

However, if you can afford it, there is a certain prestige in owning A shares. There’s even more pride if you have held them for years, showcasing your early recognition of Buffett's expertise and significant capital gains. While buying Berkshire Hathaway A shares is a valid way to invest alongside Buffett, it remains an option available to only a limited group of investors.

Holding Berkshire Hathaway A Shares

If you currently own Berkshire Hathaway A shares, there is generally no compelling reason to sell them. Buffett and his team have an impressive long-term performance record and a tried-and-true investment strategy. Furthermore, the company maintains a large cash reserve that can be deployed during market downturns, when attractive investment opportunities are often more abundant than they are in stable markets.

If you’re satisfied with Berkshire Hathaway’s management, there’s no need to part with your shares.

Selling Berkshire Hathaway A Shares

Sometimes, financial needs may require you to sell some stocks. In the case of Berkshire Hathaway's A shares, selling a single share could provide you with a significant amount of cash.

Some may feel that the time has come to sell Berkshire Hathaway shares. Reasons could include the current high price, as the stock nears its all-time highs. Additionally, you might be concerned about Buffett’s growing cash reserves, which have recently reached around $334 billion, due to the company selling off investments.

Furthermore, there could be worries about future leadership, as Warren Buffett is nearing retirement age and Charlie Munger, his long-time partner, has recently passed away.

While the next leaders are likely to be well-prepared and familiar with Buffett’s investment philosophy, there’s no guarantee of what will happen when he steps down. However, there’s also the option of converting A shares rather than selling them outright.

Converting Berkshire Hathaway A Shares

The unique A/B structure of Berkshire Hathaway offers a valuable opportunity. Owners of A shares can convert them into 1,500 B shares.

This conversion feature presents two essential takeaways. Firstly, the A and B share classes are likely to move together in price because of this feature.

Secondly, if you find yourself needing to sell an A share, it may be more advantageous to convert it to 1,500 B shares and then sell just enough B shares to meet your cash needs. This strategy allows you to retain substantial investment in Berkshire Hathaway while still accessing liquidity.

Even if you eventually intend to sell your entire stake, converting to B shares first might be beneficial due to their higher liquidity. The average daily trading volume for B shares is approximately 3.9 million shares.

When to Consider Buying Berkshire Hathaway

Berkshire Hathaway operates in a manner more similar to a mutual fund than a standard corporation. Investing in this company equates to hiring Buffett and his team as your investment managers.

It’s hard to argue that there’s a wrong time to enlist a skilled investment manager. However, the current market is experiencing highs, which could lead some investors to contemplate selling their shares.

The steep price of A shares and the option to convert them into B shares impacts the decision-making process for buying or selling, compared to other companies. For A share holders, there’s an added dimension to the buy, sell, and hold dilemma: the option to convert to B shares. This capability is a valuable tool to consider and use as per your financial strategy.

Berkshire, Buffett, Investing