It’s rather crazy for me to think that legendary investor Warren Buffett has owned some of his portfolio for longer than I’ve been alive. It’s shows that he practices what he preaches about finding good value stocks and holding them for the long term. Given that he’s held one for six decades and doesn’t appear to show any signs of selling, I’m wondering if it’s the time for me to buy as well.
The brief history
The stock I’m talking about is American Express (NYSE:AXP). It’s a household brand that was founded back in 1850 in America as a freight forwarding and express mail company.
It expanded into travel services and financial services in the following decades, launching a charge card and using plastic cards in the late 1950’s. It’s these cards and similar financial accounts that form the company that exists today.
Buffett first bought shares in American Express back in the early 1960’s, taking a notable stake in 1964 worth $13m. If we fast forward to the latest filing for Buffett’s investment company Berkshire Hathaway, it shows that it makes up just over 15% of the portfolio. The total holding is worth $41.1bn and represents over 21% of the outstanding American Express stock available.
A lesson to learn
American Express shares are up 57% over the past year alone. I can’t find out exactly what the share price was in 1964 when Buffett first bought. But from my calculations it would have been less than $1. The stock now trades at $297.
The first lesson for me here is that there’s a clear benefit of buying and holding a stock that’s doing well. This contrasts to selling after a few months to bank a few fast bucks. American Express has built up a solid business model. And it has succeeded over decades by being flexible and adapting to changing consumer needs.
For example, in the latest quarterly report it spoke about having “already completed 40 product refreshes globally since the beginning of the year, including the recent launch of our new US Consumer Gold Card.” It’s also focusing on Millennial and Gen-Z consumers. These make up the fastest growing consumer cohort overall in the US for the firm.
As it continues to adapt to consumers in the future, I think it can continue to grow profits.
Record highs
However, I’m slightly concerned about the stock recently hitting all-time highs. With a price-to-earnings ratio of 21.88, it’s almost double the ratio figure I’d use to mark a fair value.
Being potentially overvalued is only one point. The brand is facing much stiffer competition from other providers, especially new FinTech companies. So future growth could be stunted as these eat away at market share.
Ultimately, it’s a stock I’m putting on my watchlist. I’d look to buy if the share price moved lower this year. But at current levels, the reward versus the risk doesn’t quite stack up for me right now.
