The Shifting Crown: American Express Challenges Apple’s Dominance in Berkshire’s Portfolio

The Shifting Crown: American Express Challenges Apple’s Dominance in Berkshire’s Portfolio

In a fascinating development within Warren Buffett’s legendary Berkshire Hathaway equity portfolio, American Express (AXP) is rapidly closing the gap on Apple (AAPL) for the coveted top position. A combination of strategic sales by Berkshire and robust performance from the credit card giant has brought these two titans within a few billion dollars of each other, signaling a potential shift in the portfolio’s hierarchy.

Apple’s Retreat, Amex’s Ascent

Just last year, in mid-2023, Apple’s valuation within Berkshire’s holdings stood at a staggering $180 billion, dwarfing American Express by approximately $154 billion. However, the landscape has dramatically altered. Berkshire has since divested roughly three-quarters of its substantial Apple position. This significant reduction, coupled with American Express’s impressive market performance, has narrowed the lead to an unprecedented degree. While Apple’s lead briefly dipped to an all-time low of $4.3 billion, it currently rests at $8.4 billion, a stark contrast to its former dominance.

Beyond Berkshire’s selling activity, American Express has been a quiet powerhouse. Over the past two and a half years, AXP stock has surged by 106%, significantly outperforming Apple’s 35% advance. This organic growth has been a crucial factor in its climb.

A Long-Term Bet Paying Off

Buffett’s relationship with American Express dates back to 1964, when he first acquired a 5% stake after the company faced a crisis involving loan fraud. Berkshire later bolstered its AXP holdings in the 1990s, though no new shares have been purchased since that decade. Despite this, Berkshire’s ownership stake in American Express has grown to 22% of outstanding shares, primarily due to the credit card company’s consistent stock buybacks over the years – a testament to the power of long-term, patient investing and share repurchases.

The upcoming Q4 portfolio snapshot from Berkshire Hathaway, expected in approximately two weeks, will be keenly watched. Should it reveal further Apple sales, American Express could indeed claim the number one spot. Alternatively, if AXP continues its strong outperformance, it may achieve this milestone even without additional reductions in Berkshire’s Apple stake.

Buffett’s Timeless Wisdom: Don’t Panic!

Amidst the ongoing portfolio dynamics, it’s worth revisiting Warren Buffett’s enduring advice on market volatility. In a memorable appearance on CNBC’s “Squawk Box” on February 24, 2020, as fears of a looming coronavirus pandemic sent futures plummeting, Buffett offered a calm and counter-intuitive perspective to anxious investors.

When asked about the market’s significant drop, Buffett’s response was classic Oracle of Omaha:

“Well no, that’s good for us actually. I mean we’re a net buyer of stocks over time. And just like being a net buyer of food, I expect to buy food the rest of my life, and I hope that food goes down in price tomorrow. So, when stocks are down, no, we’re going to be buying, on balance. And who wouldn’t rather buy, you know, at a lower price than a higher price?”

He highlighted the peculiar human tendency to feel better when prices rise, even for those who are net savers and should logically prefer lower prices for their future purchases.

A Business, Not Just a Stock

Buffett further elaborated on his philosophy, urging investors to view stocks as ownership in businesses rather than mere tickers:

“If you’re buying a business, and that’s what stocks are, businesses — in fact, people will be better off if they say I bought a business today not a stock today, because that gives a different perspective on it — then presumably if you buy a farm, if you buy an apartment house, if you buy a business, you’re going to own it for 10 or 20 or 30 years. And the real question is this — has the 10-year or 20-year outlook for American businesses changed in the last 24 hours or 48 hours?”

He cited long-held investments like American Express (20 years) and Coca-Cola (40 years) as examples of businesses he doesn’t buy or sell based on daily headlines. This profound insight underscores the importance of a long-term perspective and fundamental analysis over reactive trading during periods of market stress.

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