Image source: The Motley Fool
It’s crazy to me to think that legendary investor Warren Buffett has had one of his portfolios longer than I’ve been alive. It shows that he practices what he preaches by finding good stocks and holding them for a long time. Considering he’s held one for sixty years and shows no signs of selling, I wonder if it’s time for me to buy one too.
A brief history
The stock I’m talking about American Express (NYSE:AXP). It is a house brand that was founded back in 1850 in America as a courier and express mail company.
It expanded into travel services and financial services in the following decades, introducing the charge card and using plastic cards in the late 1950s. It is these same cards and financial accounts that make up the company that exists today.
Buffett began buying shares in American Express back in the early 1960s, taking a significant stake in 1964 worth $13m. If we fast forward to the latest filing of Buffett’s investment company Berkshire Hathawayshows that it makes up a little more than 15% of the portfolio. The total holdings are worth $41.1bn and represent more than 21% of American Express’ outstanding stock.
A lesson to learn
American Express shares are up 57% in the past year alone. I can’t find out exactly what the share price was in 1964 when Buffett started buying. But by my calculations it would be less than $1. The stock is now trading at $297.
The first lesson for me here is that there is a clear benefit to buying and holding a stock that is performing well. This is as opposed to selling after a few months to bank a few quick bucks. American Express has built a strong business model. And it has succeeded over the decades by being flexible and adapting to changing consumer needs.
For example, in the latest quarterly report you talked about being “Already completed 40 product refreshes around the world since the start of the year, including the recent launch of our American Consumer Gold Card.” It also focuses on Millennial and Gen-Z consumers. These make up the company’s fastest-growing US customer base.
As it continues to adapt to consumers in the future, I think it can continue to increase profits.
Record the height
However, I’m a little worried about the stock that just hit a long streak. With a price-to-earnings ratio of 21.88, it’s almost double the number of ratios I’d use to mark fair value.
Being overpowered is only one point. This product faces strong competition from other providers, especially new FinTech companies. So future growth may be hampered as these eat away at market share.
Ultimately, it’s a stock I’m putting on my watch list. I would look to buy if the share price goes down this year. But at current levels, the reward versus risk just doesn’t add up for me yet.
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