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BRK-A or BRK-B for our grandchildren?

Posted: Thu Oct 10, 2019 11:35 pm
by teelainen
We are thinking about buying some Berkshire Hathaway stock for our grandchildren. They love Warren Buffett and love watching his videos on YouTube. They are still young right now, so they can't own stock in their own name yet. But we can buy stocks on their behalf through a custodial account.

Should we buy them fractional shares of BRK-A ?

Or should we buy them entire shares of BRK-B ?

Re: BRK-A or BRK-B for our grandchildren?

Posted: Thu Oct 10, 2019 11:56 pm
by Big Dog
to my knowledge, you cannot purchase fractional shares of A, so I'd purchase B-shares.

That being said, I've been a BRK shareholder for 40+ years, but would not recommend purchasing it today. IMO, BRK has just grown too large to beat the market. Any value play that Warren could find is too just small to move the needle on BRK share price.

The correct answer is give them the boring Total Stock market, but in full disclosure, I got my kids interested in investing by giving them a few shares of Disney years ago. They loved the annual reports, which had pop-outs of upcoming movies. Perhaps one of FAANG?

Re: BRK-A or BRK-B for our grandchildren?

Posted: Thu Oct 10, 2019 11:59 pm
by mhalley
I won’t get into a discussion about whether buying brk is a good idea. In the overall scheme of things, it doesn’t matter, but it might seem more gratifying to a child to own multiple shares of something as opposed to owning less than one share.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 7:39 am
by magicrat
If they love Buffet then they should follow his advice and invest in a low-cost S&P500 index fund.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 8:34 am
by dhuser
I doubt that the return is as important as getting them interested in long-term investing, so buying shares would go a long way into preparing them for the road ahead. That said, maybe buy both Berkshire stock and ETFs of either VTI or VOO (Total Stock Market or SP 500). That way they have both the stock that interests them, and a solid baseline for annual comparisons, which hopefully steers them towards becoming the sensible ("boglehead"-ish) investors as Buffett recommends.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 8:47 am
by schooner
Other than price, there are two main differences between A and B:

1) A can be converted into B shares but not the other way around. This means that B can trade at a discount but rarely a premium (due to arbitrage)

2) A has greater voting rights than B.

So if you have $300k burning a hole in your pocket and enjoy voting, A may be the way to go ;-)

And of note, I don't think you get either of these benefits if you purchase a fractional share of A through one of those brokerages that offer fractional share investing. I think the shareholder of record is actually the broker.

Edit: Regarding the B discount, it's not that great. Since B's inception in 1996, the difference in total return has just been 0.14%! So really the exact same thing.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 8:57 am
by msi
Buy a single share of BRK.B for the sake of their interest in Buffett, and then put the rest of the investment into VTI.

It's great that they're interested in this at such a young age.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 8:57 am
by Ferdinand2014
I’d say go ahead as a fun introduction to investing. I’d keep the amount smallish. The rest of any serious money I’d put into an S&P 500 index fund. Then I’d have them read his 2013 and 2017 shareholder letters. 2013 (page 20) describes his estate for his wife - 10% in short term treasuries and 90% in a S&P 500 index fund. The 2017 letter starting on page 10 is a full review of the ‘bet’ he made with a hedge fund manager that a simple S&P 500 index fund would beat the pants off them which took place from 2007-2017. Of course it did - with the winnings going to charity. In fact I would have them read every shareholder letter. They are full of business and investing lessons in very readable form.


http://www.berkshirehathaway.com/letters/2017ltr.pdf


http://www.berkshirehathaway.com/letters/2013ltr.pdf


http://www.berkshirehathaway.com/letters/letters.html


http://www.berkshirehathaway.com/

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 9:37 am
by Call_Me_Op
magicrat wrote:
Fri Oct 11, 2019 7:39 am
If they love Buffet then they should follow his advice and invest in a low-cost S&P500 index fund.
+1

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 9:47 am
by vineviz
msi wrote:
Fri Oct 11, 2019 8:57 am
Buy a single share of BRK.B for the sake of their interest in Buffett, and then put the rest of the investment into VTI.

It's great that they're interested in this at such a young age.
This plan will almost certainly have the added advantage of illustrating, in a very concrete way, the folly of investing based on personality and hero-worship instead of using a dispassionate process.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 9:55 am
by teelainen
msi wrote:
Fri Oct 11, 2019 8:57 am
It's great that they're interested in this at such a young age.
It all started when the grandkids watched CNBC and saw that Warren Buffett ate at McDonald's every morning and drank 5 cans of Coke everyday.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Fri Oct 11, 2019 10:01 am
by TomatoTomahto
teelainen wrote:
Fri Oct 11, 2019 9:55 am
msi wrote:
Fri Oct 11, 2019 8:57 am
It's great that they're interested in this at such a young age.
It all started when the grandkids watched CNBC and saw that Warren Buffett ate at McDonald's every morning and drank 5 cans of Coke everyday.
And, apparently he has influenced his friend and bridge partner Bill Gates. I couldn’t help noticing the Coke cans in many scenes of Inside Bill's Brain: Decoding Bill Gates. Interesting documentary btw, on Netflix.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 10:09 am
by tj
Big Dog wrote:
Thu Oct 10, 2019 11:56 pm
to my knowledge, you cannot purchase fractional shares of A, so I'd purchase B-shares.

That being said, I've been a BRK shareholder for 40+ years, but would not recommend purchasing it today. IMO, BRK has just grown too large to beat the market. Any value play that Warren could find is too just small to move the needle on BRK share price.

The correct answer is give them the boring Total Stock market, but in full disclosure, I got my kids interested in investing by giving them a few shares of Disney years ago. They loved the annual reports, which had pop-outs of upcoming movies. Perhaps one of FAANG?
What about for tax efficiency? If you're trying to manage your taxable income, BRK seems like a good enough holding.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 11:41 am
by ScubaHogg
vineviz wrote:
Fri Oct 11, 2019 9:47 am
msi wrote:
Fri Oct 11, 2019 8:57 am
Buy a single share of BRK.B for the sake of their interest in Buffett, and then put the rest of the investment into VTI.

It's great that they're interested in this at such a young age.
This plan will almost certainly have the added advantage of illustrating, in a very concrete way, the folly of investing based on personality and hero-worship instead of using a dispassionate process.
It might not be perfect, but BRK hasn't been a disaster for basically anyone. I'd hardly call it folly.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 11:44 am
by vineviz
ScubaHogg wrote:
Sat Oct 12, 2019 11:41 am
vineviz wrote:
Fri Oct 11, 2019 9:47 am
msi wrote:
Fri Oct 11, 2019 8:57 am
Buy a single share of BRK.B for the sake of their interest in Buffett, and then put the rest of the investment into VTI.

It's great that they're interested in this at such a young age.
This plan will almost certainly have the added advantage of illustrating, in a very concrete way, the folly of investing based on personality and hero-worship instead of using a dispassionate process.
It might not be perfect, but BRK hasn't been a disaster for basically anyone. I'd hardly call it folly.
It’s a single stock with considerable manager risk: aside from folly, I don’t know what to call it.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 6:41 pm
by arcticpineapplecorp.
teelainen wrote:
Fri Oct 11, 2019 9:55 am
msi wrote:
Fri Oct 11, 2019 8:57 am
It's great that they're interested in this at such a young age.
It all started when the grandkids watched CNBC and saw that Warren Buffett ate at McDonald's every morning and drank 5 cans of Coke everyday.
It doesn't appear that Berkshire Hathaway even own McDonalds or Coca Cola stock anymore:
https://en.wikipedia.org/wiki/List_of_a ... e_Hathaway

This article says his McD's shares were sold off by 1998:

http://www.thecompoundinvestor.com/warr ... nvestment/

Berkshire's 2017 annual report doesn't list McD's or Coke among its holdings (page 142 of 148):
http://www.annualreports.com/HostedData ... A_2017.pdf

Here's the thing:
Your grandkids can own Berkshire Hathaway, and McDonald's and Coca Cola by owning Vanguard's Total Stock Market Index Fund (and 3588 other companies):

https://investor.vanguard.com/mutual-fu ... view/vtsax

Berkshire's the 6 largest holding of the Total Stock Market Index Fund.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 6:43 pm
by 1789
Call_Me_Op wrote:
Fri Oct 11, 2019 9:37 am
magicrat wrote:
Fri Oct 11, 2019 7:39 am
If they love Buffet then they should follow his advice and invest in a low-cost S&P500 index fund.
+2

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 6:54 pm
by Rainier
arcticpineapplecorp. wrote:
Sat Oct 12, 2019 6:41 pm
teelainen wrote:
Fri Oct 11, 2019 9:55 am
msi wrote:
Fri Oct 11, 2019 8:57 am
It's great that they're interested in this at such a young age.
It all started when the grandkids watched CNBC and saw that Warren Buffett ate at McDonald's every morning and drank 5 cans of Coke everyday.
It doesn't appear that Berkshire Hathaway even own McDonalds or Coca Cola stock anymore:
https://en.wikipedia.org/wiki/List_of_a ... e_Hathaway

This article says his McD's shares were sold off by 1998:

http://www.thecompoundinvestor.com/warr ... nvestment/

Berkshire's 2017 annual report doesn't list McD's or Coke among its holdings (page 142 of 148):
http://www.annualreports.com/HostedData ... A_2017.pdf

Here's the thing:
Your grandkids can own Berkshire Hathaway, and McDonald's and Coca Cola by owning Vanguard's Total Stock Market Index Fund (and 3588 other companies):

https://investor.vanguard.com/mutual-fu ... view/vtsax

Berkshire's the 6 largest holding of the Total Stock Market Index Fund.
No. BRK owns a boatload of Coke. It's a permanent holding that Buffett would never sell.

If you think BRK has single stock risk like any other company you don't fully understand what it is.

Can somebody show me the difference in voting rights between A and B shares? I don't believe there is any special right with A shares outside of a fixed ratio of 1 to 1,500

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 7:06 pm
by illumination
I really think Berkshire at this point is no different than chasing a mutual fund that had a star manager decades ago who at this point is largely a figure head and probably not going to be on this Earth in a few years.

I know Berkshire is stock in a company and not an actively managed mutual fund, but you're essentially making the same sort of bet.

What is the stock going to do when Warren Buffet is dead? A lot of what propels Berkshire is the cult of personality, it's just going to be background noise when that's gone.

I would have loved to have bought Berkshire 40 years ago and be crazy rich, but I could say the same about all sorts of blue chip stocks as well. Look at the return from companies like Coca Cola, Johnson & Johnson, Procter&Gamble, etc.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 7:12 pm
by abuss368
magicrat wrote:
Fri Oct 11, 2019 7:39 am
If they love Buffet then they should follow his advice and invest in a low-cost S&P500 index fund.
Agree. I would buy them total stock market. They will thank you many times over in the future.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 7:26 pm
by bgf
vineviz wrote:
Fri Oct 11, 2019 9:47 am
msi wrote:
Fri Oct 11, 2019 8:57 am
Buy a single share of BRK.B for the sake of their interest in Buffett, and then put the rest of the investment into VTI.

It's great that they're interested in this at such a young age.
This plan will almost certainly have the added advantage of illustrating, in a very concrete way, the folly of investing based on personality and hero-worship instead of using a dispassionate process.
interesting because "dispassionate process" was how buffett and munger succeeded.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 7:28 pm
by arcticpineapplecorp.
Rainier wrote:
Sat Oct 12, 2019 6:54 pm
arcticpineapplecorp. wrote:
Sat Oct 12, 2019 6:41 pm
teelainen wrote:
Fri Oct 11, 2019 9:55 am
msi wrote:
Fri Oct 11, 2019 8:57 am
It's great that they're interested in this at such a young age.
It all started when the grandkids watched CNBC and saw that Warren Buffett ate at McDonald's every morning and drank 5 cans of Coke everyday.
It doesn't appear that Berkshire Hathaway even own McDonalds or Coca Cola stock anymore:
https://en.wikipedia.org/wiki/List_of_a ... e_Hathaway

This article says his McD's shares were sold off by 1998:

http://www.thecompoundinvestor.com/warr ... nvestment/

Berkshire's 2017 annual report doesn't list McD's or Coke among its holdings (page 142 of 148):
http://www.annualreports.com/HostedData ... A_2017.pdf

Here's the thing:
Your grandkids can own Berkshire Hathaway, and McDonald's and Coca Cola by owning Vanguard's Total Stock Market Index Fund (and 3588 other companies):

https://investor.vanguard.com/mutual-fu ... view/vtsax

Berkshire's the 6 largest holding of the Total Stock Market Index Fund.
No. BRK owns a boatload of Coke. It's a permanent holding that Buffett would never sell.

If you think BRK has single stock risk like any other company you don't fully understand what it is.

Can somebody show me the difference in voting rights between A and B shares? I don't believe there is any special right with A shares outside of a fixed ratio of 1 to 1,500
My bad.

I see wikipedia says it's Berkshire's 3rd largest holding:
https://www.investopedia.com/ask/answer ... -1980s.asp

Did a search on the annual report and did find:
In addition, we hold investments in common stocks of major multinational companies, such as The Coca-Cola Company, who have significant foreign business and foreign currency risk of their own.
Approximately 65% of the aggregate fair value was concentrated in five companies (American Express Company – $15.1 billion;Apple Inc. – $28.2 billion; Bank of America Corporation – $20.7 billion; The Coca-Cola Company – $18.4 billion and WellsFargo & Company – $29.3 billion)
Approximately 60% of the aggregate fair value was concentrated in five companies (American Express Company – $11.2 billion;Bank of America Corporation – $14.5 billion; The Coca-Cola Company – $16.6 billion; International Business MachinesCorporation – $13.5 billion and Wells Fargo & Company – $27.6 billion)
Shares*-------_-Company_-------------------------Percentage ofCompanyOwned-----Cost (in millions)------Market
400,000,000---The Coca-Cola Company..........9.4,------------------------------------129,918----------------352

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sat Oct 12, 2019 11:56 pm
by james22
illumination wrote:
Sat Oct 12, 2019 7:06 pm
A lot of what propels Berkshire is the cult of personality, it's just going to be background noise when that's gone.
Ha. Boglehead's belief in market efficiency is as weak as mine (if directionally opposed - I believe there is a Buffett discount, rather than a premium).

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sun Oct 13, 2019 6:06 am
by columbia
I’d set auto purchases on a large cap fund for them and use it as an opportunity to learn about the machinations of the market.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sun Oct 13, 2019 6:29 am
by student
vineviz wrote:
Sat Oct 12, 2019 11:44 am
ScubaHogg wrote:
Sat Oct 12, 2019 11:41 am
vineviz wrote:
Fri Oct 11, 2019 9:47 am
msi wrote:
Fri Oct 11, 2019 8:57 am
Buy a single share of BRK.B for the sake of their interest in Buffett, and then put the rest of the investment into VTI.

It's great that they're interested in this at such a young age.
This plan will almost certainly have the added advantage of illustrating, in a very concrete way, the folly of investing based on personality and hero-worship instead of using a dispassionate process.
It might not be perfect, but BRK hasn't been a disaster for basically anyone. I'd hardly call it folly.
It’s a single stock with considerable manager risk: aside from folly, I don’t know what to call it.
How about just as you have explained? It is "a single stock with considerable manager risk", it is accurate.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sun Oct 13, 2019 6:31 am
by student
msi wrote:
Fri Oct 11, 2019 8:57 am
Buy a single share of BRK.B for the sake of their interest in Buffett, and then put the rest of the investment into VTI.

It's great that they're interested in this at such a young age.
+1. One share of BRK.B and the "least cost" total market mutual fund/etf.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sun Oct 13, 2019 6:46 am
by JBeck
If it's a smallish sum of money sure, buy BRK.B, if not, then buy the S&P

Re: BRK-A or BRK-B for our grandchildren?

Posted: Sun Oct 13, 2019 5:09 pm
by illumination
james22 wrote:
Sat Oct 12, 2019 11:56 pm
illumination wrote:
Sat Oct 12, 2019 7:06 pm
A lot of what propels Berkshire is the cult of personality, it's just going to be background noise when that's gone.
Ha. Boglehead's belief in market efficiency is as weak as mine (if directionally opposed - I believe there is a Buffett discount, rather than a premium).
Or is Berkshire in several industries right now that have fallen out of favor? (like banking?)

I guess it depends on the investor, in the OP's case, the "legend" of Buffett is still playing a role for why they want to buy Berkshire for the grandkids and not a different stock.

You'll still see a stock "pop" short term if it comes out in the news that "Buffett" is buying into it, the market still seems to think that means it must be undervalued.

I've wondered for a long time if at least part of Buffett's success over the decades is simply being the most famous investor on Earth and that being a feedback loop.

If Buffett bought into a "terrible" company, the shares would soar, which then makes him look like a genius. Rinse and repeat. Even today, if Berkshire say initiated a large position in General Electric, you would probably see it go up double digits over night.

And Berkshire is now leveraging that name into just about everything, like residential realtors and car dealerships. So it still carries a lot of weight with a lot of people.

Investors like Carl Ichan have "outperformed" Buffett, but they never had the celebrity cachet Buffett did or the folky interviews that the media seems to eat up.

I would think much of this goes out the window when he passes away. I also think a lot of long term investors exit their position. I can't imagine a scenario where Berkshire increases in value when Buffett's dead and gone.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Mon Oct 14, 2019 12:18 am
by james22
Again - you don't believe the market reflects all available information, illumination? Not very Bogleheady of you.
illumination wrote:
Sun Oct 13, 2019 5:09 pm
I can't imagine a scenario where Berkshire increases in value when Buffett's dead and gone.
“If I die tonight, I think the stock would go up tomorrow,” Buffett, 86, said Saturday at Berkshire’s annual meeting in Omaha, Nebraska. “And there’d be speculation about breakups and all that sort of thing, so it would be a good Wall Street story.”

https://www.bloomberg.com/news/articles ... er-he-dies

Re: BRK-A or BRK-B for our grandchildren?

Posted: Mon Oct 14, 2019 8:52 pm
by illumination
james22 wrote:
Mon Oct 14, 2019 12:18 am
Again - you don't believe the market reflects all available information, illumination? Not very Bogleheady of you.
illumination wrote:
Sun Oct 13, 2019 5:09 pm
I can't imagine a scenario where Berkshire increases in value when Buffett's dead and gone.
“If I die tonight, I think the stock would go up tomorrow,” Buffett, 86, said Saturday at Berkshire’s annual meeting in Omaha, Nebraska. “And there’d be speculation about breakups and all that sort of thing, so it would be a good Wall Street story.”

https://www.bloomberg.com/news/articles ... er-he-dies
Is that anti-Boglehead? I have no idea. There seems to be all sorts of contradictions from Bogle himself on a variety of tenets.

I definitely don't believe the market always reflects all available information. I also think all sorts of emotional sentiment that causes investors to move the markets in illogical ways where they aren't trading always at fair value. I just know that I personally can't find a way to consistently take advantage of that. And the consequences are too steep to consistently make the gamble. But there are managers that have consistently beat the market over long stretches that you can't just say were "luck". I just don't know who the next Peter Lynch, Carl Icahn or Warren Buffett is just like I don't know which individual stocks will outperform.

“If I die tonight, I think the stock would go up tomorrow,” Buffett, 86, said Saturday at Berkshire’s annual meeting in Omaha, Nebraska. “And there’d be speculation about breakups and all that sort of thing, so it would be a good Wall Street story.”

Buffett is "talking his book" there and trying to keep his investors in the fold with that statement. I don't believe for a minute his death would make the stock shoot up in value. And I think he knows that too.

Re: BRK-A or BRK-B for our grandchildren?

Posted: Mon Oct 14, 2019 10:45 pm
by inbox788
You can buy the shares this investor is selling. FWIW, google finance shows similar performance over last 5 years, so it's the first 5 years of the decade that made the bigger difference.
“Thumb-sucking has not cut the Heinz mustard during the Great Bull Market of 2009-2019,” wrote David Rolfe, the chief investment officer of Wedgewood Partners, a St. Louis investment firm. “The Great Bull could have been one helluva of an astounding career denouement for Messrs. Buffett and Munger.”
Longtime Berkshire Hathaway Investor Loses Faith in Warren Buffett
https://www.barrons.com/articles/longti ... 1571069340

Longtime Berkshire Hathaway shareholder sells stake, accusing Warren Buffett of ‘thumb-sucking’
https://www.cnbc.com/2019/10/14/berkshi ... cking.html

Re: BRK-A or BRK-B for our grandchildren?

Posted: Tue Oct 15, 2019 9:25 am
by rascott
inbox788 wrote:
Mon Oct 14, 2019 10:45 pm
You can buy the shares this investor is selling. FWIW, google finance shows similar performance over last 5 years, so it's the first 5 years of the decade that made the bigger difference.
“Thumb-sucking has not cut the Heinz mustard during the Great Bull Market of 2009-2019,” wrote David Rolfe, the chief investment officer of Wedgewood Partners, a St. Louis investment firm. “The Great Bull could have been one helluva of an astounding career denouement for Messrs. Buffett and Munger.”
Longtime Berkshire Hathaway Investor Loses Faith in Warren Buffett
https://www.barrons.com/articles/longti ... 1571069340

Longtime Berkshire Hathaway shareholder sells stake, accusing Warren Buffett of ‘thumb-sucking’
https://www.cnbc.com/2019/10/14/berkshi ... cking.html

That investor is laughable..... why wasn't he able to see the "layups" that were Visa and Mastercard for his own fund?

Re: BRK-A or BRK-B for our grandchildren?

Posted: Tue Oct 15, 2019 8:45 pm
by abuss368
teelainen wrote:
Fri Oct 11, 2019 9:55 am
msi wrote:
Fri Oct 11, 2019 8:57 am
It's great that they're interested in this at such a young age.
It all started when the grandkids watched CNBC and saw that Warren Buffett ate at McDonald's every morning and drank 5 cans of Coke everyday.
Our kids too. So much that we bought them the cartoon book Warren Buffett wrote or was involved with. Our one child wrote Mr. Buffett about the book and enclosed a picture. They received a response from his secretary in Omaha!

Re: BRK-A or BRK-B for our grandchildren?

Posted: Wed Oct 16, 2019 10:15 am
by lazydavid
I wouldn't do either. It's been quite some time since Berkshire has been an outperformer, and I certainly wouldn't expect that to improve once Buffett and Munger depart this mortal coil.

Instead, as others have mentioned, I would take Buffett's own advice and buy the S&P 500 (or TSM). 100% of my 12-year-old's portfoilio is in the S&P. I chose that over TSM because it's easier for him to check on it without even logging in, if he chooses (he usually doesn't). "Alexa, how did the stock market do today?"