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Comments (20)

Orangejulius profile picture
I've been watching for them to match their 12/2018 low and they did it. I started a small position at $360 for the 4% yield. I may add more if it continues to plummet. I suspect they'll be fine in a few years.
Dividend Power profile picture
I think so. ETFs will still be a major investment vehicle. -DP
@AllStarTrader : DUE to the stress in the recent Sell-off, in your opinion, Has $BLK's position strengthened or weakened in comparison to the Asset Manager Stocks you mentioned as well as $IVZ?
Thanks for the article, I appreciate the point of view.

One nit:

"...P/E ratios between 16.0 and 18.0, I obtain a fair value range from $505.60 to $58.80." Should be $568.80.

In terms of risk, I am a little leery of the 'no commission' phenomenon, but think BLK's business model should remain resilient. Been dipping my toe in the name below $450. FWIW, M* has them at a 4 star buy at a fair value of $570.

Best of luck to all.
Dividend Power profile picture
Yes, thanks for catching the typo. BlackRock is not a brokerage for the most part. It is an asset manager. So it makes money on fees on AUM. -DP
Tom Chancellor profile picture
Good work. Thanks for the highlight. I first encountered BLK when one of their salespeople cold called me in 1999. She had to explain how they had been an institutional bond firm that bought a mutual fund company and were marketing those funds. They have come a long way in 20+ years.
Dividend Power profile picture
Thanks and you're welcome! Yes, the growth has been impressive. -DP
AllStarTrader profile picture
I would presume that if assets under management decline by the market equivalent decline that is perhaps why?
Not exactly. Only 47% of their 'base fees' come from equities (not all of which are US equities). 28% of their 'base fees' come from fixed income - which have been on a MASSIVE rally. It is possible that they may be facing withdrawals from some of their petro-sovereign clients due to the oil price collapse, but they might get inflows from institutions that are de-risking by moving money out of PE, hedge funds, etc and into fixed income and ETFs. Also there might be other forms of organic growth in AUM.

I think if you look back at their quarterly reports, these types of market corrections impact AUM but nothing like on a one-to-one basis.
Dividend Power profile picture
Yes, since people move from equities to fixed income or cash. But equities have higher fees than the other categories. -DP
Buyandhold 2012 profile picture
I can't figure out why Blackrock would be down 25% in one month when market volatility is up.

Maybe it's all of that free trading nonsense that is going around Wall Street.

Back in my day, you had to pay 2% to buy and 2% to sell.

Even more if it was fewer than 100 shares.

Can't figure out how they make their money if the trades are free.
Chris Valley profile picture
blackrock mostly makes money from management fees, the longer you hold it- the more they make. The higher the market price- the more they make. They make money other ways, but the best way they make money is just on a giant Assets Under Management number-my guess is that total AUM just took a 1-2 trillion dollar whack!

Volatility and trading volume benefits the exchanges like CME, MKTX, CBOE. That's who still gets paid by transaction. Even in the New Days, these Free Trading Commissions Days rock the big ocean.
Mick Research profile picture
@Buyandhold 2012 Blackrock is an asset manager, not a brokerage firm.

The main sources of income are:
Retails: commissions on their funds and ETFs.
Insurance companies, asset managers, pension funds, etc.: fees to use the aladdin system www.blackrock.com/...
@Buyandhold 2012 :
I'm no expert on the subject but I've wondered the same thing myself. What I've read is that most brokerage firms that now offer free trades were previously making a relatively small % of their income from the $4.95 per trade they were charging. They make a greater portion of their income from what they earn on the 'float'. That is money we have sitting around (from deposits and/or accumulating dividends or sales) in money market funds at their firms waiting to be invested. They pay a small amount of interest and charge a management fee for managing the money market fund. Brokerages also make money on margin interest from investors who buy on margin. They also still earn management fees from their ETF's and from any actively managed fund we purchase from them. Institutions and municipalities also contract their 401k, 403B, and pension funds with those firms and pay them to mange all of that money. Many of the brokerage firms also contract with banks to offer credit cards, mortgages, car loans, etc. with their customers.

I'm guessing that during bear markets, all that activity gets reduced. People may redeem their mutual funds and ETF's, stop sending in new money, stop charging on those credit cards, withdraw money already sitting there and stop buying stocks on margin. In other words, brokerage earnings are hit particularly hard during bear markets just like they benefit a lot during bull markets.

The way I think about it is those 'free trades' are like all of those 'free samples' at Costco. It's a way to get you to buy more stuff and have the energy to keep shopping and spending more money on other stuff in their store. Costco makes the bulk of their profits from the annual membership fees from customers who want to continue to get all those free samples while enjoying the treasure hunt atmosphere, the bargain prices, the less expensive gas, and those great BBQ chickens and huge hot dogs. What they don't make on those $4.99 BBQ chickens (the best deal ever) they make on getting you to the back of the store where you buy all the other stuff near those chickens :-)

BTW.........I love reading your comments and usually learn a lot, so thanks and please keep those comments coming!
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