2020: When should someone convert A shares to B shares?
BECKY QUICK: All right, here’s a question from Lou — Lou Bogart in Boca Raton, Florida.
He says, “I’m a longtime shareholder with a concern as I head into retirement. I understand the theory that splitting shares does nothing for the value of shares. However, with the extremely high price on A shares, when I wish to draw down some money on my portfolio in retirement, I’m facing a large tax hit.
“Say the average price has been about $300,000 this year, and I’m sitting on a $200,000 capital gains liability for each share. If I need $60,000 in additional cash during my retirement, I need to sell a full share and get hit with $200,000 tax liability.
“If you would split the stock 10-for-1, I could sell two $30,000 shares and keep my tax liability at a more manageable 40,000. I could also maintain more of my investment in Berkshire.”
He said, “Have you thought about this? In retrospect, I should have bought B shares but didn’t think about it the time.”
WARREN BUFFETT: Well, you can convert A to B shares, which is exactly what takes place when I give away the money in July to the five foundations. I actually convert it immediately before the gift, I mean, and so they get B shares.
And the truth is, the B shares are very useful to people that want to, either, give away a small portion of what they have, or spend it, or whatever it may be.
So, you can convert the A to B shares, which is exactly what I’ve been doing now for 14 years as I give it away, and — and solve that problem, and we —
We split the B shares, as I remember it, from one point, you know, just to make it even more manageable, so that people could deal with smaller denominations.
The B shares — the A shares have a different voting power — but, we passed some resolution some time ago, I think — and it certainly would be the case — in any event, we’re never going to give the A shares an advantage over the B.
They used to have an advantage in a shareholder-designated contribution program that we had, and we put that in there when we started but that’s in — that goes way back in time, and that doesn’t exist anymore, so that the B and the A are going to get treated exactly the same over time.
It’s true the A have more votes, but — and they sell — they sell very close to parity all the time.
So, I would say that if you want to do anything, in terms of raising cash, and you’ve got a lot of A shares, you know, you take one or two shares of A — and plenty of people I know have done this — and just cash in, and turn it into B, and give yourself whatever amount of cash you want to get.