Over the last 60 years, billionaire investor Warren Buffett has given plenty of advice to novice and expert investors alike. And by practising what he preaches, his investment firm Berkshire Hathaway has invested in a wide range of top-notch companies that have paved the way to market-beating returns.
Timeless investing wisdom
While there are countless lessons to be drawn from Buffett’s annual shareholder letters, the three most prominent, in my opinion, are:
- “Be fearful when others are greedy and greedy when others are fearful”.
- “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
- “Our favourite holding period is forever”.
Combined, these tips preach a long-term focused approach to investing, encouraging contrarian thinking and prioritising quality above price. And we can see this advice in action when looking back across Berkshire’s investments over the years, such as American Express (NYSE:AXP).
Amex ups and downs
Back in 1964, American Express was caught in the middle of the Salad Oil Scandal. The Allied Crude Vegetable Company had fraudulently inflated its salad oil inventory by filling tanks with water and adding a layer of floating oil on top to pass inspections. Why? Because the firm was then able to use this fake inventory to secure loans from American Express.
When the scandal was revealed, American Express saw its share price collapse 50% as panicking investors fled in fear. But Buffett decided to be greedy when others were fearful and used the chaos as an opportunity to start buying shares at a massive discount.
American Express is now a much larger enterprise compared to 60 years ago. Yet, even in the 1960s, the firm still had a premium brand, network effect, and high customer loyalty. Those are all traits of a high-quality or ‘wonderful’ company, in the eyes of Buffett. And even after going through a few rough patches, the ‘Oracle of Omaha’ has never once sold a single share in the business – a textbook example of his ‘buy-and-hold forever’ investing philosophy.
Still worth buying today?
In 2025, American Express continues to exhibit traits of a high-quality enterprise. And with some institutional analysts projecting the stock could climb as high as $371 by this time next year, it seems the firm still has plenty of growth to offer shareholders.
However, Buffett saw his opportunity to buy when the firm’s valuation was in the gutter. And right now, looking at the price-to-earnings ratio, the shares are trading significantly ahead of its 10-year average.
That could be particularly problematic given the group’s sensitivity to the economic cycle and rising concerns of a US tariff-induced economic slowdown in 2025. With that in mind, waiting for a more attractive entry point might be a prudent move to consider. At least, that’s what I think.
