Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Baby Berkshire

What it is:

A Baby Berkshire is a Class B share of Berkshire Hathaway (NYSE: BRK-B). The term also refers to the act of creating a portfolio of the same companies that Berkshire Hathaway invests in and then buying and selling proportionately when Berkshire Hathaway buys and sells.

How it works (Example):

Berkshire Hathaway is a publicly traded investment company headed by the world famous investor, Warren Buffett. The company has two classes of shares: the A class, which has never split and thus typically costs well over $100,000 per share, and the B class, which are each equal to a small fraction (about 1/30) of one Class A share.

The Class B shares are much less expensive because after Berkshire Hathaway acquired Burlington Northern Santa Fe, it split its Class B shares 50:1.

Why it Matters:

Investing in Baby Berkshires is a way to obtain shares of a legendary company without having to come up with hundreds of thousands of dollars of capital. It is also a way to indirectly purchase a basket of shares of ownership in other companies. The accessibility also lends a liquidity advantage to Baby Berkshires, as more people are able to buy and sell the shares (which is precisely why the Class B shares became part of the S&P 500 index in early 2010).