When Great Businesses Become Bad Investments

A financial stock can be a great business but still not a good investment. To distinguish between the two, investors need to check two boxes: the company must have favorable characteristics that indicate durable success and its shares must be attractively priced.

The example of American Express illustrates this point. With a strong track record of revenue and profit growth, consistent pricing power, and brand strength, it's a high-quality business. However, when its valuation gets too high, it becomes a poor investment. At the start of 2026, American Express traded at a price-to-earnings ratio of around 24, but by September 25, its share price had fallen by 17%.

With fundamentals unchanged, the current valuation presents a better entry point for prospective investors. The S&P 500 index has climbed 13% this year, and American Express now trades at a P/E multiple of under 19.