Blueprint of Value: 'The Manual of Ideas' & Inside American Express!
"Never invest in a business you cannot understand." - Warren Buffett
As we embark on our journey today, we're venturing into the intriguing realm of a corporation that has piqued our interest, American Express. We will also be deciphering pearls of wisdom from the renowned investment wizard, Warren Buffett, also known as the Sage of Omaha, and taking cues from a key influencer in the sphere of value investing, Seth Klarman. Moreover, we're exploring a must-read classic for all aspiring market savants - "The Manual of Ideas" by John Mihaljevic. Furthermore, we will be dispensing actionable advice to refine and improve your investment gameplan. So, sit back, relax, and get ready for a riveting roller coaster ride through the exciting world of finance and investment.
Book Review
"The Manual of Ideas" by John Mihaljevic
"The Manual of Ideas: The Proven Framework for Finding the Best Value Investments" by John Mihaljevic provides readers with an insightful and pragmatic guide to value investing, a must-read for anyone seeking to delve deeper into this style of investing.
Key Takeaways:
Diverse Approaches to Value Investing: Mihaljevic breaks down the complexities of value investing into different styles including asset-oriented opportunities, earnings power value, and franchise/quality value, providing investors with multiple lenses to evaluate potential investments.
Disciplined Framework: The book details a rigorous process for stock selection that emphasizes critical thinking, extensive research, and comparative analysis. It challenges readers to look beyond superficial metrics and delve deeper into a company's intrinsic value.
Investment Thesis: It emphasizes the importance of forming a strong, clear investment thesis before investing, demonstrating how this clarity can guide decision-making and reduce emotional bias.
Focus on Moats: Mihaljevic underscores the importance of investing in companies with sustainable competitive advantages or 'economic moats.' He provides practical guidelines on how to identify such companies.
Risk Management: The book provides valuable insights into managing risk, emphasizing that the price paid for a stock can significantly influence the risk-reward ratio.
How It Can Be Applied:
"The Manual of Ideas" is not just a theoretical exposition; it is packed with practical tips and examples that can be directly applied in real-world investing. The strategies it advocates can guide investors in identifying undervalued stocks, evaluating them from different perspectives, and building a robust, diversified portfolio. The book also encourages a disciplined, patient approach to investing, valuable traits in any market conditions.
Why It's Worth Reading:
"The Manual of Ideas" stands out for its clear, practical, and comprehensive approach to value investing. It caters to both beginners and experienced investors, making complex concepts accessible while offering fresh perspectives that seasoned investors will appreciate. Its strength lies in the detailed, yet straightforward framework it provides, equipping readers with the tools to make intelligent, informed investment decisions. For anyone looking to enhance their value investing skills, this book is a valuable addition to their library.
Company Breakdown
Ticker: American Express AXP
Price: $153.48
P/E Ratio: 16.12
Market Cap 114.073B
Summary:
American Express Company (AXP), often referred to as Amex, is a global financial services corporation headquartered in New York City. Established in 1850, it is one of the 30 companies included in the Dow Jones Industrial Average. The company is primarily known for its credit card, charge card, and traveler's cheque businesses.
American Express makes money through several channels:
Discount Revenue: This is the largest revenue source for the company. Every time an Amex card is used for a transaction, the company charges a discount rate or a small percentage of the transaction from the merchant. This is also known as swipe fee. The fee varies but averages around 2.5%.
Interest Income: American Express earns interest on outstanding balances that cardholders do not pay in full. This forms a substantial part of the revenue, as many customers use their credit cards as a form of short-term borrowing.
Fees: The company charges annual membership fees for some of its credit cards, particularly its premium cards that offer more rewards and benefits. It also earns fees from late payments and foreign transactions.
Travel and Other Commissions: Amex also operates a travel agency and makes money from commissions on travel bookings and sales of other products and services.
Global Business Services: American Express provides expense management solutions to corporations, from which it earns service fees.
Despite competition from other major credit card companies, American Express remains one of the leading players in the global payments industry, thanks to its premium branding, loyal customer base, and comprehensive suite of products and services.
The Moat
Strong Brand Recognition: American Express (Amex) has established a powerful brand that is widely recognized and trusted by consumers and businesses around the world. Its reputation for quality service and premium offerings gives it a competitive advantage, making it a preferred choice for many customers.
Extensive Merchant Network: Amex has built a vast network of merchants and partners, including major retailers, airlines, hotels, and restaurants. This extensive network provides cardholders with a wide range of acceptance options and exclusive benefits, making it more compelling for customers to choose and use Amex cards.
Premium Customer Base: American Express focuses on attracting and retaining high-spending customers, such as affluent individuals and businesses. This premium customer base generates substantial transaction volumes, which translates into higher revenues for Amex. The company's ability to cater to the unique needs and preferences of this target market acts as a moat against competitors.
Comprehensive Rewards and Benefits: Amex offers a range of rewards programs, including cashback, travel rewards, and membership rewards. These programs provide customers with incentives to use their Amex cards for purchases and transactions. The breadth and depth of these rewards and benefits create a significant switching cost for customers, as they would lose out on the accumulated rewards by switching to a different card provider.
Superior Customer Service: American Express is known for its exceptional customer service. The company places a strong emphasis on providing personalized support and assistance to its cardholders, which sets it apart from many other card issuers. This commitment to customer service helps foster loyalty and enhances the overall customer experience, acting as a moat that deters customers from switching to competitors.
Investor Spotlight
John Mihaljevic is an investment professional and author known for his expertise in value investing. He is the founder of MOI Global, a membership community of intelligent investors, and serves as its Managing Editor. Mihaljevic is also the author of "The Manual of Ideas: The Proven Framework for Finding the Best Value Investments" and "The Manual of Ideas: The Best-Kept Secrets of Value Investing." He is highly regarded for his deep knowledge of value investing principles and his ability to identify attractive investment opportunities.
Investing Tips
One of John Mihaljevic's investing tips is to focus on finding businesses with durable competitive advantages, often referred to as "economic moats." He suggests seeking companies that possess unique qualities or characteristics that allow them to maintain a competitive edge over their rivals in the long term. By investing in businesses with strong moats, investors increase the likelihood of sustained profitability and value creation.
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