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
3.92K Followers

Summary

  • 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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Introduction

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

This article was written by

Eric Sprague profile picture
3.92K Followers
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: https://twitter.com/ftreric

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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