When you think about some of the great institutional investors, two that immediately come to mind are Warren Buffett and Bill Ackman.
Buffett has run the large conglomerate Berkshire Hathaway (BRK.A +0.25%)(BRK.B +0.19%) since 1965 and was instrumental in building its massive roughly $337 billion equities portfolio. Meanwhile, Ackman has run the hedge fund Pershing Square Capital Management since 2004.
Both funds have performed very well and soundly beaten the market. But who performed better in the 21st century? Let's take a look.
Image source: Motley Fool.
Buffett: sector-agnostic, long-term value investing
Buffett is widely known as one of the greatest investors of all time, if not the greatest. Buffett has also run many companies under the Berkshire Hathaway umbrella, including insurance, mortgage, and energy.
In terms of his investing style, Buffett tends to follow the teachings of Benjamin Graham, who is considered the "father of value investing." Value investing is the practice of finding and buying assets that trade below their intrinsic value, either because the market doesn't understand the business or it is simply ignoring the company. Buffett believes that over time the market will value them fairly or even above their intrinsic value. This strategy has worked well, and Buffett employed it across many sectors, including financials, consumer staples, energy, media, and even technology.
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Now, this doesn't always mean buying a stock below its book value, as some might think. Buffett has famously said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Buffett often likes to take advantage of periods of distress to buy stocks at a bargain, telling investors to be "greedy when others are fearful." He demonstrated this methodology when he purchased Geico in the 1970s, even when the company looked like it might go bankrupt. Buffett also invested in Bank of America right after the Great Recession.
Ackman: from activist to passive investor
Bill Ackman and his fund Pershing Square Capital Management have employed a variety of investing strategies over the years.
For many years, Ackman was known as an "activist" investor, meaning he takes a very active role in companies that he believes to have potential in order to unlock value for shareholders. One time he did this was when Pershing took a position and commenced a proxy battle with Canadian Pacific Railway in order to install a new CEO. The campaign and the investment would be very successful for Ackman and Pershing.
Ackman has also been an activist short seller. This means that he is not only betting against companies that he believes are no good, but actively working against them to bring down the stock price by issuing short reports and launching other public campaigns.
Pershing shorted some of the mortgage companies with too much subprime exposure during the Great Recession, but Ackman's most famous activist-short campaign was against the dietary supplement company Herbalife. Ackman publicly called the company a pyramid scheme, and also debated the company's merit with another famous investor, Carl Icahn, on CNBC. Ackman would ultimately end up taking heavy losses on the bet.
These days, Ackman and Pershing have transitioned to making passive, longer-term investments. Pershing currently owns six stocks in its $9.3 billion portfolio.
Who's been the better investor?
There are a few ways to look at this. Between 2004 and 2022, Pershing Square Capital Management generated 17.1% annualized returns.
Between 2004 and 2022, shares of Berkshire Class A stock generated compound annual returns of nearly 10.8%. However, between 1965 and 2022, Berkshire shares have generated compound annualized returns of 19.8%. Berkshire also runs a much larger equities portfolio, so the comparison may not exactly be apples to apples.
Over the last decade, the value of Pershing's portfolio is up by more than 193%, while the value of Berkshire's equities portfolio is up by more than 109%. By the numbers, Pershing has outperformed Berkshire's stock between 2004 and 2022.
But considering the different sizes of the portfolios and Berkshire's incredible performance over close to six decades, there's probably an argument to be made for both Buffett and Ackman. Either way, they are certainly two of the best.
