Warren Buffett is one of the most famous – and most successful – investors of all time. As the chairman and Chief Executive Officer of Berkshire Hathaway (BRK-B), Buffett has an investment track record that is unmatched. Luckily, investors can piggyback off of Buffett’s success by looking at Berkshire Hathaway’s dividend stock portfolio. Buffett is required to disclose his holdings through 13F filings, which are filed with the Securities and Exchange Commission and detail the company’s portfolio of common stock investments.
American Express (AXP) is a core holding in Berkshire Hathaway’s portfolio. As of 12/31/2016, American Express was Berkshire’s fifth largest holding behind:
- Kraft Heinz (KHC)
- Wells Fargo (WFC)
- The Coca-Cola Company (KO)
- International Business Machines (IBM)
The story of Buffett’s original acquisition of American Express has become a legend in the world of value investing. Buffett original invested in American Express back in 1964, when the company was going through the famous ‘salad oil scandal’.
This major corporate scandal was centered around a company, Allied Crude Vegetable Oil, that discovered it could obtain loans based on its inventory of salad oil. Knowing that salad oil would float on water, company workers filled barrels mostly with water to fraudulently ‘increase’ their inventory and qualify for larger loans.
These loans were disproportionately large given the economics of the underlying business. Eventually, the company defaulted, and American Express suffered losses as one of its creditors. The markets punished American Express’ stock, presenting a buying opportunity for Warren Buffett and Berkshire Hathaway.
Now, decades after the scandal, Berkshire Hathaway owns 151,610,700 shares of American Express worth approximately $12 billion.
This article will discuss the investment prospects of American Express in detail.
Business Overview
American Express is a large credit services business.
The company can trace its roots back to 1850, when it was founded by Henry Wells, William Fargo, and John Warren Butterfield.
The names Wells and Fargo likely ring a bell with many readers. This is for good reason – the duo also founded Wells Fargo. Buffett (and by extension, Berkshire Hathaway) are clearly fans of Henry Wells and William Fargo’s businesses, with one quarter of Berkshire’s investment portfolio invested between American Express and Wells Fargo.
