Executive summary: Although American Express looks cheap based on their historic profitability, the company is subject to rapid technological change and fierce competition in the payment industry. To me it is not clear how this will work out going forward, so for the time being I will not invest but look deeper into the industry.
American Express is well known in value investment circles because Buffett owns ~15% of the company and made a lot of money with it.
Recently the stock price came under pressure mainly because:
- they lost a big co-branding contract (Costco) which will materialize in 2016
- EPS shrank for the first time since 2001
- lost a court case (vendors steering clients to cheaper cards)
- “fintech hype”: mobile payment & peer-to-peer lkoan platforms as disruptors
The stock price clearly has suffered and is down more than -40% from its peak in late 2014 /early 2015:
David Merkel with some good observations on Berkshire’s 2015 annual report with a focus on insurance
How UK’s Ratesetter “transforms” from “peer-to-peer” to pretty “ordinary” lender
Good write-up about Moleskine Spa
Long but good Forbes story on Visa
Larry Swedroe likes Emerging Markets stocks
Some great investment advice from Jason Zweig: Just do nothing
One general remark upfront: The 2015 annual report wasn’t that exciting in my opinion. Actually, I didn’t plan to write a post on it. However, after reading a couple of posts on the topic, I though maybe some readers are interested because I haven’t seen those points mentioned very often elsewhere.
- Bad year for GEICO
GEICO had a pretty bad year in 2015. The loss ratio (in percent of premium) increased to 82,1% (from 77,7%), the Combined ratio increased to 98% and the underwriting profit fell by -60%. Buffett talks about the cost advantage a lot in the letter, but the only explanation forthe increase in loss ratios are found in the actual report: