Every quarter, the Securities and Exchange Commission (SEC) requires institutional investors with over $100 million in assets to list exactly what U.S. publicly traded stocks they own, how many shares they hold, and the total dollar amount of those positions.
One company that investors follow religiously is Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB). Investors have finally caught a glimpse of what Berkshire bought and sold during the first quarter. The conglomerate trimmed several stocks from its portfolio, but its top three holdings remained steady: Apple (NASDAQ: AAPL), American Express (NYSE: AXP), and Coca-Cola (NYSE: KO).
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American Express is a quintessential Warren Buffett investment that Berkshire Hathaway has owned for decades, and there’s one major reason why it remains a top holding after all these years.
American Express boasts a strong economic moat
In Q1, Berkshire Hathaway sold its entire stake in both Visa and Mastercard but continued to hold American Express.
What separates American Express from its competitors is that it operates a closed-loop payments network, meaning it is the card issuer and network processor, and also holds and services its own credit card loans. This enables American Express to earn both network fees from transactions and interest income on its loans.
Another advantage for American Express is its successful branding targeted toward high-net-worth, high-spend individuals. The company positions itself as a luxury card and offers customers rewards and benefits to reflect this. Benefits like Centurion Lounges, concierge services, and early access to ticket sales reinforce its status as a premium brand, rather than just a payment method.
As a result, American Express cardholders spend significantly more per transaction than users of other networks. In 2024, the average Amex transaction was $150, compared to roughly $94 for Mastercard and $91 for Visa.
Because Amex brings high-spending customers to the table, merchants are often willing to pay higher merchant discount rates to access its customer base. On top of that, it generates substantial revenue from annual card fees, like its $695 Platinum Card.
Another benefit of this customer base is that it helps the company maintain good credit quality, allowing it to better navigate recessionary or inflationary periods. In Q1, its net charge-off rate was 2.3%. In comparison, Capital One, another major closed-loop payment network operator after its acquisition of Discover last year, reported a charge-off rate of 3.7% on its credit cards.
