American Express
Company Overview
American Express is one of the world's leading financial services companies, best known for its charge cards, credit cards, and travel services. Founded in 1850 as an express mail and freight company, American Express has reinvented itself multiple times over 175 years, most significantly as the dominant premium consumer charge card, whose cardholders are disproportionately high-income, high-spending individuals and small business owners.
American Express operates what economists call a "two-sided network" — it must attract both cardholders (who want merchants that accept the card) and merchants (who want the high-spending cardholders). The premium brand and closed-loop network create compounding network effects: more cardholders attract more merchants, which attracts more cardholders. This network is extraordinarily difficult to replicate and creates switching costs on both sides of the market.
Investment Story
1963: The Salad Oil Scandal. In 1963, the "salad oil scandal" erupted: a commodities trader, Tino De Angelis, had fraudulently certified enormous inventories of vegetable oil stored in tanks at a New Jersey warehouse, when in fact the tanks were mostly water with a thin layer of salad oil on top. American Express had provided warehouse receipts for the oil; the fraud exposed it to potentially devastating claims. The stock dropped sharply as investors feared bankruptcy.
Buffett's Decisive Action. Aged 33, Buffett invested roughly $13 million — 40% of his partnership's total assets — in American Express at about $35 per share. This was perhaps his most concentrated bet to date. His analysis was unconventional and field-based: he visited restaurants, talking to waiters and managers, and observed that people kept paying with their American Express cards even in the midst of the scandal. Consumer behavior hadn't changed. The brand was intact. The financial liability was serious but bounded.
1964–1967: The Investment Thesis Confirmed. American Express shares rose from the mid-$30s to over $180 — roughly a 5x return. Buffett sold the position in the mid-1960s as it approached his estimate of full value. He has since described this sale as "a mistake."
1991–1994: The Shearson Era Crisis. American Express had diversified far beyond its core businesses in the 1980s, acquiring Shearson (brokerage) and IDS (financial planning) and suffering enormous losses. Harvey Golub took over as CEO and began a dramatic refocusing on the core charge card business. Berkshire accumulated a large position in the early 1990s as the restructuring progressed.
1994–Present: Core of the Portfolio. By the mid-1990s, Berkshire held roughly 10% of American Express, a position it has maintained and expanded. By 2022, Berkshire owned approximately 20% of the company — its largest ownership percentage in any public equity — making American Express one of Berkshire's three "permanent" holdings alongside Coca-Cola and Apple.
Buffett's Own Words
GEICO’s problems at that time put it in a position analogous to that of American Express in 1964 following the salad oil scandal. Both were one-of-a-kind companies, temporarily reeling from the effects of a fiscal blow that did not destroy their exceptional underlying economics. The GEICO and American Express situations, extraordinary business franchises with a localized excisable cancer (needing, to be sure, a skilled surgeon), should be distinguished from the true “turnaround” situation in which the managers ex
American Express and GEICO. Overall, however, we've done better by avoiding dragons than by slaying them. o My most surprising discovery: the overwhelming importance in business of an unseen force that we might call "the institutional imperative." In business school, I was given no hint of the imperative's existence and I did not intuitively understand it when I entered the business world. I thought then that decent, intelligent, and experienced managers would automatically make rational business decisions. Bu
*ACF Industries Debentures ...... $133,065(1) $163,327 American Express "Percs" ....... 300,000 309,000(1)(2) Champion International Conv. Pfd. 300,000(1) 309,000(2) First Empire State Conv. Pfd. .. 40,000 68,000(1)(2) Salomon Conv. Pfd. ............. 700,000(1) 756,000(2) USAir Conv. Pfd. ............... 358,000(1) 268,500(2) Washington Public Power Systems Bonds 58,768(1) 81,002 *
American Express Company........ 10.5% $ 132 The Coca-Cola Company........... 8.1% 180 The Walt Disney Company......... 3.6% 50 Federal Home Loan Mortgage Corp. 8.4% 77 The Gillette Company............ 8.6% 73 McDonald's Corporation.......... 4.3% 38 The Washington Post Company..... 15.8% 27 Wells Fargo & Company........... 8.0% 8
Shares Company Cost Market (dollars in millions) 50,536,900 American Express Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,470 $ 5,180 200,000,000 The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,299 13,400 51,202,242 The Walt Disney Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,536 60,298,000 Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,885 96,000,000 The*
Investment Lessons
Brand resilience to external shocks is testable. During the salad oil scandal, Buffett didn't rely on financial analysis alone — he did field research. Eating at restaurants, watching customers reach for their Amex cards despite the scandal headlines, gave him primary evidence that the brand's hold on consumer behavior was intact. The company's financial statements reflected anxiety; consumer behavior at the point of sale reflected trust. The behavioral evidence trumped the financial fear.
Two-sided networks create exponential moats. American Express's network connects high-spending cardholders with merchants who want their business. Each new cardholder adds value to merchants (justifying acceptance fees); each new merchant adds value to cardholders (justifying the annual fee). This virtuous cycle creates a compounding competitive position — not just a snapshot of current dominance but a dynamically strengthening network that requires competitors to simultaneously attract both sides of the market.
High-income customer bases weather recessions better. American Express cardholders skew dramatically toward high-income, high-net-worth demographics. During economic downturns, this customer base reduces spending less than average consumers, generating more stable revenues for Amex than for mass-market financial products. Combined with the company's ability to adjust credit exposure and limit potential losses on its credit products, this demographic focus creates a resilience that became evident in multiple recessions.
Never sell your best ideas at the first sign of full valuation. Buffett sold American Express in 1967, calling it "a mistake." He sold because it appeared fully priced relative to near-term earnings — but failed to fully account for the long-term compounding that a dominant financial network would generate. The lesson reinforced his later philosophy of "forever" holding for truly exceptional businesses: the cost of exit (taxes, reinvestment risk, opportunity cost of reentry) almost always exceeds the benefit of redeployment.