Berkshire Hathaway vs BlackRock: Which Is Best?

Warren Buffett is just a few months away from his 93rd birthday, but by all accounts, he hasn’t slowed down in the least. He is still hard at work every day, guiding his company Berkshire Hathaway to grow and profit.

Buffett bought his first stock when he was 11 years old, which launched his career as one of the most successful investors of all time. By 1962, he was a millionaire, and he achieved billionaire status in 1990. Today, Warren Buffett’s net worth is nearly $110 billion, almost entirely due to the success of Berkshire Hathaway.

Buffett took control of Berkshire Hathaway in 1965 when it was a small, unprofitable textile manufacturer. He transformed it into a holding company with dozens of subsidiaries and a massive stock portfolio valued at more than $340 billion. Buffett’s success made him one of the most famous investors in the world, so he is a tempting target for comparisons – especially when relatively new fund managers realize strong returns using methods that Buffett finds questionable.

For example, when tech stocks took off in 2021, Cathie Wood’s ARK Invest family of funds saw substantial returns while Warren Buffett’s Berkshire Hathaway stayed fairly flat. Some suggested Wood’s strategy was the future of the finance industry. They were proven wrong when the tech market collapsed in 2022.

BlackRock Investments – along with founder, Chairman, and CEO Larry Fink – is another contender in the debate over which investment strategy is best. Have Warren Buffett and Larry Fink’s followers found the answer? When it comes to Berkshire Hathaway vs. BlackRock, which is best?

Why Is Berkshire Hathaway So Famous?

Berkshire Hathaway’s fame has nothing to do with its brands and subsidiaries. It is famous for its success. Since Warren Buffett took over the company, Berkshire Hathaway has delivered returns totaling more than 3,700,000 percent.

For perspective, the S&P 500’s annualized returns from 1965 to 2022 are under 25,000 percent. Berkshire Hathaway shareholders have enjoyed an annualized return of nearly 20 percent, while those that relied on the S&P 500 index realized roughly half that.

Berkshire Hathaway’s returns are largely due to Warren Buffett’s disciplined investment strategy that focuses on buying quality companies at below-market prices.

He never gets caught up in unsupported enthusiasm for temporarily popular stocks. Instead, he looks for the stocks that are getting no attention at all, despite their wide moats and solid financials.

He buys them at a bargain with the goal of holding them long-term. Examples of Warren Buffett stocks include Apple, Bank of America, American Express, Coca-Cola, and Visa.

How Does Berkshire Make Money?

While Berkshire Hathaway’s large stock portfolio certainly helps with the company’s profitability, that’s not the only way Berkshire makes money. Berkshire Hathaway also has a collection of successful subsidiaries.

Examples of Berkshire Hathaway subsidiaries include:

  • Berkshire Hathaway Direct Insurance Company

  • Berkshire Hathaway Energy Company

  • Duracell

  • Fruit of the Loom

  • GEICO Auto Insurance

  • IMC International Metalworking Companies

  • Kraft Heinz

  • Oriental Trading Company

  • Pampered Chef

  • Precision Castparts Corp.

  • See’s Candies

Insurance is a big part of Berkshire Hathaway’s business, as is energy generation and distribution. There are also a number of manufacturing companies that contribute a substantial portion of Berkshire Hathaway’s earnings before taxes. Ownership of these sorts of subsidiaries is one of the biggest differences between Berkshire Hathaway and BlackRock.

What Exactly Does BlackRock Do?

BlackRock is strictly in the financial services business. It has a global presence, and it is dedicated to developing investment, advisory, and risk management solutions for its clients. BlackRock manages an extensive portfolio of mutual funds and exchange-traded funds (ETFs), including bond funds, cash funds, commodity funds, multi-asset funds, real estate funds, and stock funds.

One of BlackRock’s best known brands is iShares, a family of ETFs that track everything from the S&P 500 to 20+ year treasury bonds.

Investors can find iShares ETFs that focus on a particular geography or specialize in emerging and frontier markets. Alternatively, they can invest in ETFs dedicated to niche interests like blockchain (the technology that powers crypto currency) or particular themes, such as sustainability.

While BlackRock makes some money from its own investments, its primary source of revenue is fees. BlackRock charges its clients for investment advisory services, and there are fees associated with the administrative functions it performs on behalf of clients. Examples of BlackRock competitors include State Street, T. Rowe Price, and Vanguard.

What Is The BlackRock Controversy?

BlackRock spent years cultivating its reputation, and it had a relatively scandal-free history until recently.

In 2022, BlackRock attracted anger from both ends of the political spectrum. On the liberal side, activists expressed outrage at BlackRock’s perceived hypocrisy in heavily promoting eco-conscious investing while holding large stakes in the fossil fuel industry.

On the conservative side, the attorney generals of 19 states alleged that BlackRock as a whole and CEO Fink in particular violated their fiduciary duties to work in the best interest of clients. They alleged that BlackRock sacrificed returns while pursuing its eco-conscious strategy.

The controversy caused Florida to terminate its $2 billion relationship with BlackRock, which had been responsible for managing pension funds for the state.

BlackRock vs. Berkshire Hathaway: Which Is Best?

In the BlackRock vs Berkshire Hathaway debate, both sides can make persuasive arguments – and those arguments wouldn’t necessarily contradict each other.

Berkshire Hathaway and BlackRock both have an ability to generate shareholder returns and both have large stock portfolios, but after that, the similarities end. Berkshire Hathaway actually produces a diverse mix of products and services, while BlackRock limits its activities to financial services.

Berkshire Hathaway is certainly out to make a profit, but it takes a long-term, value-based view of investing. BlackRock is more willing to gamble on emerging economies and new technology under the theory that it might happen upon the next Amazon or Google. It’s worth noting that BlackRock has a stake in Berkshire Hathaway, as do State Street and Vanguard. None of these stocks are included in Berkshire Hathaway’s portfolio.

Investors who are primarily interested in owning a financial services stock are likely to see respectable returns over time with BlackRock. In the past five years, BlackRock stock has gone up more than 25 percent.

However, investors who prefer greater diversification or are only concerned with results are better off with Berkshire Hathaway, whose Class B shares have five-year returns of roughly 58 percent – more than double BlackRock’s for the same period. In short, Berkshire Hathaway stock is the better buy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.