Warren Buffett Gained $58 Billion From This 1 Stock

There is a very good reason why Warren Buffett is known as the Oracle of Omaha. Since taking control of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) in 1965, Buffett has generated cumulative returns 5,502,284%, or nearly 20% a year, compared to 39,054% returns for the S&P 500, a 10.4% annual return. 

An investor who parked a $10,000 investment in Berkshire back then would be worth over $550.2 million today, while the same in the S&P 500 would be just $3.9 million. Not too shabby, but not a half-billion dollars either.

Buffett has been able to produce such tremendous results because he buys stocks for the long-term, preferring to purchase them with an idea of never selling them (though, of course, he does). He also looks to buy great companies trading at a good price, understanding that quality will rise to the top over time.

You can find a number of stocks in Berkshire Hathaway’s portfolio that he has owned for well more than 10 years, and some he has held onto for over two decades. The oldest position in his portfolio belongs to Coca-Cola (NYSE:KO), which he first purchased more than 37 years ago. It has produced total returns of nearly 7,000% for the Oracle.

Yet there is one stock Buffett owns that has been an even better investment. It’s the stock he’s owned for the second-longest time, American Express (NYSE:AXP).

Saving from scandal

Buffett first bought AmEx stock in the early 1960’s following the “salad oil scandal” that left American Express on the hook for millions of dollars in liabilities. Buffett began buying the stock and acquired a 5% stake worth $20 million. AXP stock would increase 10-fold in value over the next decade as it became the leader in household credit and Buffett would later sell his stake for multibagger bagger gains. 

His current holdings in American Express started in 1991, some acquired via a $300 million purchase of preferred shares. He continued buying more and by the end of the decade, Buffett owned over 50 million shares.

Although Buffett has not bought a single share since, American Express has grown to occupy the fourth biggest position in Berkshire Hathaway. Today he owns over 151 million shares worth some $45.7 billion today. That’s the power of converting preferred shares into common shares and a 3-for-1 stock split in 2000 that helped compound them over time.

Buffett told Bloomberg News in 2002 that the credit card company was a one-of-a-kind business. 

“You can’t create another American Express. I could create another shoe store, I could create another business publication, I could do all kinds of things with hundreds of billions of dollars. But I can’t put in the minds of people what is in their minds about American Express.” 

The power of dividends

Part of its uniqueness is its resilience. American Express primarily targets higher-income individuals so that tough economic conditions affect them less, or at least later than others. That gives the company a buffer through all kinds of market conditions.

Another favorite aspect of the stock is it pays a dividend. Buffett collects about $424 million a year in dividend payments from the payout that currently yields about 1% annually. 

Since the 2000 stock split alone, AXP stock has generated total returns of 917%, a combination of stock price appreciation and dividends that would have produced some $58 billion in value for Buffett. If we go back to August 1991 when Buffett first acquired his position, American Express sports total returns of nearly 8,000%! 

It’s a lucrative position and explains why he refuses to let go of the stock even though he hasn’t bought any shares in decades. It also highlights the value of buying quality companies at good prices, and never selling the stock. 

Those are Buffett principles that still hold as true today as they did back when the Oracle first bought shares of American Express stock.

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