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

Berkshire Hathaway (BRK.A) (BRK.B) is a well-known name in the investment world, mainly because it is led by the legendary investor Warren Buffett. For those interested in joining Buffett in his investing journey, there are two classes of Berkshire Hathaway shares to consider.

For most investors, purchasing the B shares may seem like the simplest choice. However, there are important considerations regarding the buy, sell, hold, or convert options for the A shares.

Buying Berkshire Hathaway A Shares

Buying A shares of Berkshire Hathaway is generally only an option for those with substantial funds, as each A share is priced at over $748,000. This means that purchasing even a small number of shares could require almost $8 million. As a result, there is typically a low trading volume, averaging only about 1,500 shares per day.

For those who can afford it, owning A shares comes with significant prestige. Many A shareholders likely have enjoyed considerable capital gains over the years by recognizing Buffett's investing prowess early on. Nevertheless, the high price of the A shares makes them inaccessible to most investors.

Holding Berkshire Hathaway A Shares

If you currently own Berkshire Hathaway A shares, there isn’t a compelling reason to sell them. Buffett and his team have an impressive long-term track record and a sound investment strategy. Moreover, the company has a robust cash reserve that could be utilized during market downturns, when better investment opportunities arise.

If you are satisfied with Berkshire Hathaway's management and overall performance, retaining your shares is likely the best course of action.

Selling Berkshire Hathaway A Shares

In certain circumstances, such as needing liquidity, selling shares might be necessary. Since A shares sell for a high price, even selling a single share can provide significant cash.

Some may feel it is time to sell due to various factors, including the stock's high valuation as it approaches all-time highs. Investors might also be concerned about the large cash reserves that Buffett is accumulating, currently around $334 billion in cash and short-term investments.

Furthermore, concerns about future leadership may also prompt decisions to sell. Warren Buffett is nearing retirement, and his long-time business partner, Charlie Munger, recently passed away. While the incoming leadership is expected to be trained under Buffett's style, the transition might raise uncertainties.

Converting Berkshire Hathaway A Shares

The unique structure of Berkshire Hathaway allows owners of A shares to convert their shares into 1,500 B shares. This option offers two significant advantages. First, the conversion feature means the two share classes are likely to move in price together.

Second, if you need to liquidate some of your investment, converting A shares into B shares can be an effective strategy. This allows you to sell just the necessary number of B shares to raise the cash you need while keeping a larger stake in the company. Given the higher liquidity of B shares, with an average daily trading volume of around 3.9 million, this could make the selling process smoother.

Determining the Right Time to Buy Berkshire Hathaway

Berkshire Hathaway operates similarly to a mutual fund in that you are essentially investing in the expertise of Buffett and his team. It is challenging to pinpoint an incorrect time to invest in a skilled management team. That said, current market conditions show stock prices, including that of Berkshire Hathaway, are at elevated levels, which might motivate some investors to consider selling.

The pricey A shares and their convertibility to B shares create a unique scenario regarding buying and selling decisions. For A shareholders, understanding the conversion option adds an important layer to the typical buy, sell, or hold decision-making process. This feature can serve as a strategic tool, allowing better management of your investment based on your cash needs.

Berkshire, Investing, Buffett