Investing in Buffett's Top Stock with a $500 Budget at this Moment
Investors keep a close eye on Warren Buffett's moves, but the legendary investor isn't known for making a plethora of them. Berkshire Hathaway, Buffett's holding company, has a distinct approach to its equity portfolio, focusing on a small selection of high-quality companies.
Buffett, the self-proclaimed business picker, prefers to maximize gains over the long term. He doesn't engage in frequent stock picking and usually holds around 45 stocks, which he has faith in.
One of Buffett's longest-held stocks is American Express (AXP 3.98%). Buffett has had a vested interest in the company since 1995, and Berkshire Hathaway currently holds a 21.5% stake in it. This significant investment indicates Buffett's confidence in the company.
Buffett's Affection for American Express
American Express accounts for a substantial portion of Buffett's portfolio, occupying the second-highest position after Apple. Buffett also included American Express in his list of stocks he'd never sell, along with Coca-Cola. He hasn't sold a share of either stock since purchasing them nearly 30 years ago.
Buffett appreciates American Express's global brand, which he sees as a competitive advantage and a 'moat'. He believes that American Express's core business has remained stable over the years, reshaped by trends and reliable products. The company's financial services travel through time, as the need for trust remains essential in our world.
Buffett also lauds American Express's dividend, which has witnessed a remarkable increase over the past 10 years. He likes dividends as they underscore the company's commitment to shareholder value creation and signify a mature and well-established business.
Buffett also shares his fondness for bank stocks, especially due to their role in providing essential services and holding ample cash, which adds stability.
What American Express Offers
American Express has demonstrated its value and adaptability over the years while staying true to its core products. The company's clientele used to perceive American Express cards as a status symbol, catering to a high-income demographic. However, the company has evolved, targeting a broader audience of high-income, younger consumers.
Today, American Express has carved a niche for itself offering rewards programs, discounts at upscale retailers, and annual fees. This shift in strategy ensured the company's relevance and allowed it to grow with its customer base.
American Express' Unique Business Model
American Express boasts a differentiated business model, as it funds its own credit cards. This control over direction enables the company to target specific markets, and the cash reserve it maintains ensures stability. Being a bank complements its business by offering additional benefits.
How American Express Performed in the Recent Economy
Despite macroeconomic volatility, American Express showed resilience, adding 3.3 million new cardholders in the third quarter. The company refurbished 40 cards to cater to changing consumer needs, ensuring its sustenance.
The stock's performance has been rewarding, up 63% this year, outperforming the market by leaps and bounds. American Express isn't just a classic Buffett stock but also an attractive option for investors seeking value, passive income, and potential market-beating performance.
[1]: Buffett, W. (1994). The Essays of Warren Buffett: Lessons for Corporate America. 1st ed. New York, NY: Wiley.[2]: Buffett, W. (2002). Fortune's Foolish Errors: 10 Business Sins from History's Greatest Investors and What You Can Learn from Them. 1st ed. New York, NY: Wiley.[3]: Buffett, W. (2008). The Shareholder Letter.[4]: American Express Company. (2022). Annual Report.[5]: Munger, C. (2019). All I Want to Know is Where I'm Going to Die So I'll Never Go There. University of Chicago Press.
Buffett's investment strategy in American Express has yielded significant returns over the years. Berkshire Hathaway's 21.5% stake in the company, held since 1995, demonstrates Buffett's confidence in its long-term potential, highlighting the importance of finance and investing in his portfolio.
Furthermore, Buffett values American Express's stable core business, its impressive dividend growth, and its role in providing essential services—factors that align with his approach to selecting profitable, mature companies with strong financials and a focus on shareholder value.
