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

Berkshire Hathaway (BRK.A 2.87%) (BRK.B 2.27%) is recognized as one of the leading companies on Wall Street, mainly due to its association with legendary investor Warren Buffett. If you aspire to invest alongside Buffett, you have the option to purchase either of its two share classes.

The straightforward choice for most investors would typically be to opt for the B shares. However, the decision-making process regarding whether to buy, sell, hold, or convert A shares requires further consideration.

Buy Berkshire Hathaway A Shares

If you have significant capital at your disposal, acquiring Berkshire Hathaway A shares may be an option. Yet, "significant" is putting it gently, as one A share costs more than $748,000.

This is not a mistake! If you were to buy just 10 shares, it would require nearly $8 million! This explains why the average daily trading volume of A shares is around just 1,500. For the majority of investors, owning even a single A share is likely out of reach.

Nonetheless, if you possess the funds, owning A shares provides a certain bragging rights. That status is even more significant if you have held onto them for an extended period, indicating that you recognized Buffett's potential long before others and likely enjoy substantial capital gains. However, while investing in A shares can be a valid strategy for those who can afford it, the number of investors who can actually make such an investment is quite limited.

Hold Berkshire Hathaway A Shares

In simple terms, if you hold Berkshire Hathaway A shares, there is no compelling reason to sell them. Buffett and his management team boast an impressive long-term performance and a refined investment strategy. Moreover, the company has a substantial cash reserve that it can utilize during market downturns when investment opportunities are likely to arise more frequently.

If you are satisfied with how Berkshire Hathaway has been managed, there is no need to divest your shares.

Sell Berkshire Hathaway A Shares

In certain unavoidable circumstances, such as needing cash, you might have no choice but to sell some stocks. Selling just one share of Berkshire Hathaway A shares can yield a significant amount of money.

Additionally, there may be valid reasons for considering the sale of Berkshire Hathaway A shares. For example, the stock is currently trading near all-time highs, which might lead you to believe that it’s a good time to sell. Perhaps you are not in favor of the cash reserves that Buffett has been accumulating, especially with around $334 billion in cash and short-term investments on the balance sheet.

Concerns about leadership might also play a role in your decision. Warren Buffett is nearing the age where he may step back from daily operations, and the recent passing of his long-time partner, Charlie Munger, adds to these worries.

Convert Berkshire Hathaway A Shares

The distinctive A/B share structure of Berkshire Hathaway provides an interesting option. A share owners have the ability to convert their shares into 1,500 B shares.

This conversion feature leads to two important conclusions. First, the two share classes are likely to trade in a correlated manner. Second, if you find yourself needing to sell an A share, converting it to 1,500 B shares before selling could be a savvy move. This way, you can sell just the amount you require, while still retaining a larger exposure to Berkshire Hathaway.

Opting to convert shares before selling might be particularly beneficial because the B shares enjoy much higher liquidity, with an average daily volume of 3.9 million shares, making selling them easier.

There's No Wrong Time to Buy Berkshire Hathaway

Berkshire Hathaway behaves more like a mutual fund than a conventional company, as investing in it equates to buying into the investment capabilities of Buffett and his team.

It is challenging to advocate that any moment is a poor time to hire a good investment manager. However, with the market nearing record highs alongside Berkshire Hathaway’s stock price, some investors may have legitimate reasons to consider selling.

The high cost of A shares and the option to convert to B shares alters the dynamics of buying and selling compared to other firms. Thus, if you hold A shares, you should incorporate conversion as a potential option into your decision-making process alongside buying, selling, and holding. This conversion capability is an additional resource at your disposal that can be valuable if used to your advantage.

Berkshire, Investing, Stocks