Here is a comprehensive, step-by-step guide on how Berkshire Hathaway stock works.
The Ultimate Guide to Understanding and Investing in Berkshire Hathaway Stock
Have you ever been fascinated by the legendary investor Warren Buffett and his massive conglomerate, Berkshire Hathaway? Do you wonder how a company with a stock price in the hundreds of thousands of dollars works, and if you can even own a piece of it? You're not alone! The workings of Berkshire Hathaway's stock are unique and a source of curiosity for many investors. Let's embark on this journey together to demystify the "Oracle of Omaha's" empire and understand how its stock functions.
Step 1: Understand the Two Classes of Berkshire Hathaway Stock
Before you do anything else, you need to grasp the most important concept: Berkshire Hathaway has two distinct classes of stock. This is where most of the confusion arises, and understanding it is the key to everything that follows.
Class A (Ticker: BRK.A): The Original, Expensive Shares
Imagine a stock so exclusive that a single share costs a small fortune. That's BRK.A. These are the original shares of Berkshire Hathaway, and they are intentionally kept at a high price by Warren Buffett to attract long-term, buy-and-hold investors who share his philosophy. He has famously avoided a traditional stock split for these shares to discourage short-term speculation.
Key characteristics of BRK.A:
Extremely high price: A single share can cost over $600,000.
Superior voting rights: Each Class A share has one vote. This gives shareholders significant influence in the company's decisions.
Convertibility: Class A shares can be converted into Class B shares, but not the other way around. This provides a path for large investors to gain liquidity if needed.
No stock splits: These shares have never been split.
Class B (Ticker: BRK.B): The "Baby Berkshire" Shares
Recognizing that the price of Class A shares was out of reach for most individual investors, Berkshire Hathaway introduced Class B shares in 1996. These are often referred to as "Baby Berkshire" and have since had a stock split in 2010. They are designed to make ownership accessible to a broader audience.
Key characteristics of BRK.B:
Much more affordable price: A single share typically costs a few hundred dollars.
Fractional voting rights: Each Class B share has 1/10,000th of the voting rights of a Class A share. While you have a say, your influence is minimal compared to Class A shareholders.
No conversion to Class A: You cannot convert Class B shares into Class A shares.
Split history: Class B shares have had a 50-to-1 stock split in 2010, which made them even more accessible.
So, which one is for you? For the vast majority of retail investors, BRK.B is the only realistic option. It provides you with ownership in the same underlying businesses and investment portfolio as Class A shares, but at a price that fits your budget.
Step 2: Understand What You're Really Buying
This is not just another company's stock. When you buy Berkshire Hathaway stock, you are buying a piece of a massive, diversified conglomerate and a world-class investment portfolio.
Sub-heading: The Conglomerate - A Diverse Empire
Berkshire Hathaway is a holding company. This means it owns and operates a vast array of companies across numerous industries. Think of it as a mutual fund that owns entire businesses, not just stocks. Some of its most well-known subsidiaries include:
GEICO (insurance)
BNSF Railway (freight railroad)
Lubrizol (specialty chemicals)
Duracell (batteries)
Fruit of the Loom (apparel)
See's Candies (confectionery)
Precision Castparts (aerospace and industrial parts)
The performance of these wholly-owned businesses contributes directly to Berkshire's earnings and overall value.
Sub-heading: The Investment Portfolio - The "Buffett Stocks"
In addition to its owned companies, Berkshire Hathaway holds a massive portfolio of publicly traded stocks. This portfolio is managed by Warren Buffett and his team, and it's where much of the fascination lies. The holdings are disclosed in regulatory filings (13F filings) and at the annual shareholder meeting. Key holdings often include:
Apple (a huge position)
American Express
Coca-Cola
Bank of America
Chevron
The value of your Berkshire Hathaway stock is tied to the performance of this diverse mix of wholly-owned businesses and publicly traded stocks.
Step 3: The Step-by-Step Guide to Buying Berkshire Hathaway Stock
Now that you understand the different classes and what you're buying, let's get down to the brass tacks.
Step 3.1: Open a Brokerage Account
This is your first and most crucial step. You cannot buy Berkshire Hathaway stock directly from the company. You need a brokerage account, which is an investment account that allows you to buy and sell stocks and other securities. If you don't have one, you'll need to open one with a reputable brokerage firm.
Choose a brokerage that offers US-based stocks and has low fees. Many popular platforms like Zerodha, Groww, or international brokers like Interactive Brokers will work.
Complete the account application process and provide the necessary identification documents.
Step 3.2: Fund Your Account
Once your brokerage account is open, you need to add money to it. This can be done through various methods, such as a bank transfer (NEFT/RTGS/IMPS), UPI, or a linked bank account. Make sure you have sufficient funds to cover the purchase of at least one share of BRK.B and any associated brokerage fees.
Step 3.3: Research and Decide
Before you hit the "buy" button, it's wise to do some research. While you're buying into a well-managed conglomerate, it's always good to be informed.
Read Berkshire Hathaway's annual reports and quarterly reports, which are available on its investor relations website.
Understand Warren Buffett's value investing philosophy: He looks for great companies at a fair price, with strong competitive advantages, and holds them for the long term.
Decide on your investment amount. Remember, with the affordable price of BRK.B, you can start with a smaller sum. Many brokerages even offer fractional shares, allowing you to buy a portion of a share for a specific dollar amount.
Step 3.4: Place Your Order
Now for the exciting part!
Search for the ticker: In your brokerage platform, search for "BRK.B".
Choose your order type:
Market order: This will execute your trade at the best available price right now. It's the fastest way to buy.
Limit order: This allows you to set a specific price you are willing to pay. Your order will only be executed if the stock reaches that price. This gives you more control but may not be executed if the price doesn't drop to your limit.
Enter the number of shares: Specify how many shares (or what dollar amount, if buying fractional shares) you want to purchase.
Review and submit: Double-check all the details of your order, including the ticker, quantity, and order type. Once you're confident, submit the order.
Congratulations! You are now a shareholder of Berkshire Hathaway, an owner of a piece of Warren Buffett's legendary business.
Step 4: The Long-Term Holding - Patience is Key
Warren Buffett's famous saying is, "Our favorite holding period is forever." This isn't a stock for day-trading or short-term gains. The value of Berkshire Hathaway is built over decades through consistent, disciplined investing and the compounding of returns.
No Dividends: It is crucial to note that Berkshire Hathaway does not pay a dividend. Instead of distributing profits to shareholders, Buffett prefers to reinvest all the earnings back into the business, either by acquiring new companies or buying more stocks for the portfolio. This is a core part of their growth strategy.
Focus on Intrinsic Value: Instead of tracking the daily price fluctuations, successful Berkshire shareholders focus on the long-term growth of the company's intrinsic value, which is driven by the performance of its businesses and investments.
Attend the Annual Meeting (or watch online): The Berkshire Hathaway annual shareholder meeting in Omaha, Nebraska, is a legendary event, often called the "Woodstock for Capitalists." You can watch it online to hear from Warren Buffett and his team directly.
Related FAQs: How to...
Here are 10 quick answers to common questions about Berkshire Hathaway stock.
1. How to buy Berkshire Hathaway Class A stock? To buy Class A (BRK.A) stock, you follow the same steps as buying Class B, but you need a significant amount of capital, as the price of a single share is very high.
2. How to get voting rights in Berkshire Hathaway? You get voting rights by owning either Class A or Class B shares. However, Class A shares have significantly more voting power (1 vote per share) than Class B shares (1/10,000th of a vote per share).
3. How to buy fractional shares of Berkshire Hathaway stock? Many modern brokerage platforms offer fractional share trading. You can simply specify a dollar amount you want to invest (e.g., $100), and the platform will buy a corresponding fraction of a BRK.B share for you.
4. How to track Berkshire Hathaway's portfolio holdings? Berkshire Hathaway discloses its public equity holdings in a quarterly filing with the SEC called a Form 13F. You can find these filings on the SEC's EDGAR database or on financial news websites.
5. How to convert Berkshire Hathaway stock? Only Class A (BRK.A) shares can be converted into Class B (BRK.B) shares. The conversion ratio is 1 BRK.A to 1,500 BRK.B. You cannot convert Class B shares back to Class A.
6. How to invest in Berkshire Hathaway without a brokerage account? You can't directly buy the stock without a brokerage account. However, you can invest in a mutual fund or ETF that holds Berkshire Hathaway as a top position, which allows you to gain exposure to the stock indirectly.
7. How to know when Berkshire Hathaway will split its stock? Warren Buffett has a long-standing philosophy against splitting the Class A shares. The Class B shares had a 50-to-1 split in 2010, but there is no set schedule for future splits. The decision is made by the company's management.
8. How to get dividends from Berkshire Hathaway stock? You will not receive dividends from Berkshire Hathaway. The company has a policy of reinvesting all its earnings back into the business, as this is a key part of its long-term growth strategy.
9. How to attend the Berkshire Hathaway annual shareholder meeting? To attend the meeting, you need to be a shareholder. You can obtain a credential by providing proof of ownership (a brokerage statement) to the company. The meeting is also live-streamed online for those who cannot attend in person.
10. How to find out what subsidiaries Berkshire Hathaway owns? Berkshire Hathaway's official website has a list of its wholly-owned subsidiaries. These range from well-known brands like GEICO and Duracell to industrial companies like Precision Castparts. You can also find this information in their annual reports.