Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Berkshire Hathaway may seem to be a peculiar organization that cannot easily be pigeonholed into any sector. In its latest annual report dated February 26, 2022, it was stated:
It owns and operates more U.S.-based “infrastructure” assets – classified on our balance sheet as property, plant and equipment – than are owned and operated by any other American corporation.
Operations of its “Big Four” companies account for a very large chunk of Berkshire’s value: the insurance business, the company’s 5.55% stake in Apple Inc the railroad company BNSF whose trains traveled 143 million miles and carried 535 million tons of cargo in 2021, and Berkshire Hathaway Energy which is described as a leading force in wind, solar and transmission throughout much of the U.S.
Leading non-controlling stakes in financial services companies such as a 19.9% stake in American Express, a 13.3% stake in Moody’s, a 12.8% stake in Bank of America and an 8.3% stake in BNY Mellon.
Non-controlling stakes in leading companies outside of financial services and Apple include a 9.2% stake in Coca-Cola and a 7.7% stake in Chinese electric vehicle company BYD.
Outside of “market value” considerations, the company also has a $10 billion investment in Occidental Petroleum Corporation, a 26.6% interest in Kraft Heinz and a 38.6% interest in Pilot Travel Centers (also known as “Pilot Flying J”), the U.S.’ biggest operator of truck stops and travel centers.
Furthermore, despite the company’s “Big Four” assertion, it is clear that – in terms of earnings – the company’s mainstay has been its numerous investments:
Thus, it could be stated that, in its current stage, Berkshire Hathaway is essentially an investment management firm whose principals’ investment strategy can be bought into via the company’s shares – which is theoretically similar to being invested in any of Cathie Wood’s Ark Funds. The difference lies in the former’s concentration largely along classical businesses while the latter focuses predominantly on companies in the zeitgeist of “innovation”.
Share Classes Explained
In response to investor demands more than 20 years ago, the company’s stock is currently available in two share classes, with a few key differences:
The “Class A Common Stock”, which the company states will never face a stock split, is meant for investors focused on long-term profits. At prices currently around the $500,000 mark, it is one of the most expensive shares in the world. However, the stock’s holder can choose to convert each “Class A” share into 1,500 “Class B” shares.
The “Class B Common Stock” is priced more reasonably, trades more frequently and cannot be converted into “Class A” shares. However, each “Class B” share currently has 1/10,000th the voting rights of a “Class A” share.
Theoretically, given these differences, it stands to reason that an analysis of the 3 ratios similar to that executed in recent articles should show an exact match across both share classes. In reality, however, this isn’t quite the case.
The “A vs B” Factor – calculated simply by dividing the Class A Ratio by the Class B Ratio – indicates that there are instances when the Class B shares tend to be traded either at a (slight) premium or a discount relative to the Class A shares. There is an additional interesting point to note in the snapshot:
The seemingly-perfect Factor for the PE Ratio as of the end of March doesn’t quite imply a perfect price match across share classes. Since the Factors for the PS and PB Ratios are both below 1,500, this seems to be a minor rounding error from the data provider.
Given the PS and PB Ratios as of that day, it could be estimated that the Class B share traded at a slight premium relative to the Class A share. This is proven by actual stock prices recorded: as of closing on that day, a 1/1,500th “slice” of the Class A was 0.08% cheaper than the Class B.
On the 31st of May, the PE Ratio continues to show a perfect match across share classes while the Factors for PS and PB Ratios are 1,501.90 and 1,492.99. As of closing that day, a 1/1,500th “slice” of the Class A was 0.02% costlier than the Class B.
“Class A” Investor Behaviour TrendsIn 2017, the company’s Board of Directors has approved a common stock repurchase program for both Class A and Class B shares. While there were no purchases in 2017, this program has been running in subsequent years. While the number of Class A shares has reportedly decreased over the years, the number of Class B shares have increased. It is likely that a number of Class A holders have been exercising their right to convert to Class B shares. Assuming no other factors, the number of conversions that have taken place can be estimated thus:
There seems to be no overall trend between overall repurchases vis-à-vis conversions, which lends support to two arguments:
Some Class A holders have likely rationalized that holding Class B shares – and the inherent premium/discount trends – is marginally more preferable to holding the Class A shares.
It is likely that conversions were made in response to market conditions making it preferable to hold the Class B Shares, which is significantly more liquid.
Monthly Traded Volume: Trend Analysis
To evaluate the relative attractiveness of the company’s value proposition across the investor classes, lets define two terms purely for this portion of the analysis:
An “Exit” is defined as the instance when a month’s average traded volume (in units) is lower than that in the previous month.
A “Buy-In” is defined as the instance when a month’s average traded volume (in units) is higher than that in the previous month.
From 2019 till the present, it can be determined that trends in both share classes are in tandem more often than not:
While there are instances where the outlook among the two shareholder demographics have differed, this doesn’t lend itself to any particularly significant or even mid- to long-term differences in trajectory. Thus, the differences in ratios highlighted between the share classes have been relatively miniscule.
In relation to the benchmark S&P 500 index (denoted as “SPX”), there have been some very interesting developments in terms of stock performance in 2022:
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
Terms and Conditions
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.