The People’s Share: Berkshire Hathaway Class B

Discover how Warren Buffett reluctantly created 'Baby Berkshire' shares to outsmart Wall Street and eventually democratized world-class investing.[INTRO]ALEX: Imagine you want to buy a single share of stock in a company, but that one share costs more than a five-bedroom house in the suburbs. In 2024, one share of Berkshire Hathaway Class A could set you back over $600,000.JORDAN: That is absolutely ridiculous. Who is that even for? You’re telling me I can’t invest in Warren Buffett unless I’m already a multi-millionaire?ALEX: That was exactly the problem. And the solution—Berkshire Hathaway Class B—is arguably the most important 'participation trophy' in financial history, turning a billionaire’s private club into a retirement staple for the rest of us.JORDAN: So, did Buffett just wake up one day and decide to be inclusive, or was there a catch?[CHAPTER 1 - Origin]ALEX: It definitely wasn’t out of the goodness of his heart. For decades, Warren Buffett refused to split Berkshire’s stock. He wanted long-term investors, not speculators who would jump in and out because the price looked 'cheap.'JORDAN: But the market hates a vacuum. If he wouldn’t provide a cheap version, someone else would, right?ALEX: Precisely. By 1996, Wall Street brokers were creating 'unit investment trusts.' They’d buy the expensive Class A shares, slice them up into tiny pieces, and sell those pieces to the public while charging massive management fees.JORDAN: So they were essentially scalping Buffett’s reputation? Charging people just for the privilege of holding his coat?ALEX: Exactly. Buffett called them 'tax-extending clones' designed to be sold, not bought. To kill these high-fee middlemen, he reluctantly issued Class B shares on May 9, 1996. He dubbed them the 'Baby Berkshires.'JORDAN: I’m guessing they weren’t exactly equal to the big-boy shares, though.ALEX: Not even close. Originally, they were priced at 1/30th of a Class A share but only had 1/200th of the voting rights. Buffett wanted your money, but he didn't necessarily want your opinion on how to run the company.[CHAPTER 2 - Core Story]ALEX: For fourteen years, Class B shares were just a niche option. But in 2010, the story shifted from 'defensive move' to 'world domination.'JORDAN: What changed? Did Buffett finally decide to go mainstream?ALEX: He wanted to buy a railroad—the Burlington Northern Santa Fe, or BNSF. It was a massive deal, and he wanted to pay BNSF shareholders with Berkshire stock instead of just cash.JORDAN: But if your stock costs six figures per share, you can't exactly give a guy with ten shares of railroad stock a fair trade. The math doesn't work.ALEX: Exactly. You can’t give someone half a share of a stock that doesn't split. So, Buffett performed a massive 50-for-1 split on the Class B shares. This dropped the price of a 'Baby Berkshire' to around $70 a share.JORDAN: That’s a huge psychological shift. From 'unobtainable' to 'cheaper than a video game.'ALEX: It changed everything. Because the price was now low and there were millions of shares moving every day, the S&P 500 finally added Berkshire Hathaway to the index. JORDAN: Wait, so if you have a 401(k) or an S&P 500 index fund, you’re basically a Buffett investor now?ALEX: You almost certainly are. This move forced every major index fund in the world to buy up Class B shares. It transformed Berkshire from a private fortress into a pillar of the global economy.JORDAN: And what happened to that voting power during the split?ALEX: It got even more diluted. Today, one Class B share has 1/1,500th of the value of a Class A share, but only 1/10,000th of the voting power. You get the profits, but Warren and his inner circle keep the steering wheel.[CHAPTER 3 - Why It Matters]JORDAN: Okay, so Class B is the 'everyman' stock. But why does it actually matter today, other than being a line item in my Vanguard account?ALEX: It matters because of the 'Float.' Berkshire isn't just a stock; it’s a giant insurance machine. They own companies like GEICO that collect premiums upfront and pay claims later. JORDAN: And in the meantime, they have billions of dollars just sitting there?ALEX: Right now, they have about $160 billion in 'float.' It’s basically an interest-free loan that Buffett uses to buy other companies like Dairy Queen, Duracell, or massive chunks of Apple.JORDAN: It’s like a snowball that never stops rolling. But there’s a giant elephant in the room here. Buffett is in his 90s. His partner Charlie Munger recently passed away. What happens to my 'Baby Berkshires' when the Oracle of Omaha is gone?ALEX: That’s the multi-billion dollar question. There is a 'Buffett Premium'—the extra value people pay just because he’s at the helm. When he leaves, many fear a 'Buffett Discount' will kick in.JORDAN: So the Class B shares could take a hit just because the magic man left the building?ALEX: It's possible. But the company has spent a decade preparing. They’ve named Greg Abel as the successor CEO and hired investment managers like Todd Combs to handle the portfolio. The Class B structure was built to ensure the company survives the transition without a chaotic power struggle.[OUTRO]JORDAN: It’s wild that a stock created out of spite for Wall Street middlemen ended up becoming the way the entire world owns a piece of the American economy. What’s the one thing to remember about Berkshire Class B?ALEX: Class B shares democratized the world’s most exclusive investment, proving that even the most elite 'fortress' companies eventually have to open their gates to the common investor to keep growing.JORDAN: That’s Wikipodia — every story, on demand. Search your next topic at wikipodia.ai