Berkshire Hathaway Remains Undervalued

Aug. 24, 2021 10:28 AM ETBerkshire Hathaway Inc. (BRK.A), BRK.BAAPL, UNP148 Comments
Eric Sprague profile picture
Eric Sprague


  • CEO Warren Buffett has bought back a large number of shares in 2020 in the first half of 2021.
  • First half 2021 pre-tax operating earnings for manufacturing and service/retailing are up nicely over the first half of 2020.
  • The stock portfolio is now in excess of $300 billion!
BNSF Train, Burlington Northern Santa Fe
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My thesis is that Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is undervalued. CEO Warren Buffett has been taking advantage of this by buying back shares. He repurchased the equivalent of 80,998 “A” shares in 2020 which increased the ownership for existing shareholders

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Eric Sprague profile picture
I'm an individual investor heavily influenced by Warren Buffett and Charlie Munger. Munger's 1994 USC Business School Speech is something I think about a lot: ### Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result. ... Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you're going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum. In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%—or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work. ### Feel free to follow me on twitter:

Disclosure: I/we have a beneficial long position in the shares of BRK.A, BRK.B, UNP, VOO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: Any material in this article should not be relied on as a formal investment recommendation. Never buy a stock without doing your own thorough research.

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