Berkshire Hathaway's Big Bet on American Express Pays Off

Berkshire Hathaway's portfolio has a significant stake in American Express, representing nearly 14% of its $359 billion holding. The conglomerate owns 22.5% of the financial services company that has seen its shares double over the past five years.

American Express passes the quality test used by Warren Buffett and Greg Abel to evaluate investments. It boasts a strong brand, economic moat, and network effect, making it a robust competitor in the industry.

The financial services company's revenue growth may not be impressive, but its durable financial gains are significant. Management expects long-term growth of 10% per year in revenue and mid-teens annualized rate in earnings per share.

American Express is benefiting from the rise of the cashless economy, with $456 billion worth of volume processed in the second quarter, a 9% increase year over year. The company's premium cards have pricing power, with new card members, particularly millennials and Gen Z, showing a willingness to pay higher fees.