Warren Buffett"s strategy shift during American Express scandal
- In 1963, a fraud involving Allied Crude Vegetable Oil Refining Corporation was exposed, raising concerns about American Express's reputation.
- Warren Buffett began investing in Amex in mid-April 1964, recognizing its potential despite the ongoing scandal.
- Buffett's investment strategy shifted to focus on undervalued businesses with strong management, leading to significant gains in Amex's stock.
In the early 1960s, the Allied Crude Vegetable Oil Refining Corporation was involved in a significant fraud that came to light in 1963. The company had been heavily investing in the oil futures market, leading to suspicions of wrongdoing. Warren Buffett, viewing stock investments as ownership in businesses, began to take an interest in American Express (Amex) during this tumultuous period. He tracked Amex's stock price as the scandal unfolded, intrigued by the potential to buy shares at a low price. Buffett's investment in Amex began in mid-April 1964, shortly after the fraud was exposed. Despite the negative press surrounding the scandal, he recognized the company's underlying value and the potential for recovery. By June 1964, Buffett had invested significantly, and within two and a half years, Amex's stock price had risen dramatically, reflecting a gain of 124 percent. The scandal had a profound impact on Amex's reputation, particularly due to its reliance on banks for its travelers' cheques business. The company faced potential liabilities that could threaten its operations. However, Buffett's strategy of identifying fundamentally strong businesses with capable management allowed him to capitalize on the situation. Ultimately, Buffett's approach marked a shift in his investment strategy, focusing on uncovering undervalued companies and allowing their management to operate effectively. This incident not only shaped his future investments but also demonstrated the importance of recognizing value amidst crisis.