Baby Berkshire

What Is a Baby Berkshire?

Baby Berkshire is a nickname for Berkshire Hathaway Class B shares after the 50:1 stock split on January 20th, 2010. This split reduced the value of each share. At the market close, Berkshire Class B shares were trading at $3,476. The stock split came as a result of Berkshire's acquisition of Burlington Northern Santa Fe.

The primary difference between Berkshire Hathaway's Class A stock (BRK-A) and Class B stock (BRK-B) is the share price. As of September 2020, Berkshire Hathaway Class A is trading for about $315,891 per share. Berkshire Hathaway Class B shares trade at approximately $210.44.

Understanding Baby Berkshire

When Berkshire first issued 517,500 shares of Class B shares (BRK-B) in 1996, investors initially could purchase shares for one-thirtieth of the price of a Class A share of stock. The 50-to-1 stock split in 2010 sent the ratio to one-1,500th. Class B shares carried correspondingly lower voting rights as well (one-two hundredth of the per-share voting rights.).

Prior to the stock split, Berkshire Class B shares did not have sufficient trading volume to make them eligible for inclusion in the S&P 500 market index. However, lowering the market price through the stock split placed the stock into a more conventional trading range, where it became much more frequently traded. Berkshire Class B shares were added to the S&P 500 on February 12th, 2010.

Companies with Baby Berkshire Business Models

Journalists also use the term "Baby Berkshire" to describe companies with business models that are similar to Berkshire Hathaway's business model. Compass Diversified Holdings is one of these companies. Like Berkshire, Compass Diversified Holdings is essentially a publicly-traded portfolio of operating companies. Other firms designated as "Baby Berkshires" include Alleghany Corporation, which focuses on the insurance business with holdings in property, casualty, surety, and fidelity insurance; and diversified holding company Leucadia National.

"Baby Berkshire" is also used to refer to businesses based on the Berkshire Hathaway business model.

Leucadia's largest business is the investment bank Jefferies Group, which it acquired in 2012. The company also owns the U.S.'s fourth-largest beef processor, National Beef; a 50% partnership with Berkshire in Berkadia, a venture for real estate lending; the 15th-largest U.S. auto dealer, Garcadia; and various other businesses, including restaurants, telecommunications, and real estate. Similar to Berkshire, Leucadia invests heavily in the energy sector. Berkshire acquired MidAmerican Energy in 2000 and has been building its utility business ever since, while Leucadia has big investments in liquefied natural gas.

Markel, a holding company for global insurance, reinsurance, and investment operations, has also been referred to as a "Baby Berkshire" by the media. However, in recent years its business operations have diverged from Berkshire Hathaway. Although both companies have historically generated a great deal of revenue by investing their float — the money an insurance company holds in its own accounts between the time it's collected from customers as premiums and paid out for claims — the majority of Markel's revenue is from its insurance operations. This is not the case for Berkshire Hathaway. (Approximately one-quarter of its revenue in 2018 came from its insurance operations.) The two companies' insurance operations are also very distinct. Whereas Markel's is primarily a specialty insurer — workers' compensation, classic cars, and environmental and energy liability — Berkshire Hathaway earned the majority of its insurance revenue in the year 2018 from its Geico subsidiary, an auto insurance company.