1995: What are Buffett's expectations for Berkshire's investment in American Express?

AUDIENCE MEMBER: Thank you for the opportunity. Dick Jensen (PH) from Omaha, a fellow Nebraska University supporter.

A rather convoluted question: very interested in your recent purchase and your future intention of American Express. And as I understand the company, I know it’s a rather involved and complicated and rather expansive company, insofar as it has its interest in many areas.

I know one of which, of course, is the credit card. But there’s also the major part of the organization of IDS and others that I don’t even know about.

And I wondered, what your hopes are for that investment.

And I also, just recently, as perhaps you have, became curious to know if you are personally acquainted with Mr. Phil Carret, I believe, his name is. And how about the purchase of his firm in your future? Thank you.

WARREN BUFFETT: Dick, I think Phil Carret is here today. Phil?

CHARLIE MUNGER: He’s right back there.

WARREN BUFFETT: Phil, would you stand up? There he is. (Applause)

Give him a hand.

Phil is 98. I first met him in 1952, 43 years ago. He attends every eclipse around the world. And you can run into him in some very strange places.

Wrote his first book on securities, I believe, in 1924. I — am I right on that, Phil? Yeah.

And wrote an autobiography here, recently.

Probably the greatest long-term investment record in this country’s history. And — but I think — I, you know, my impression is that Phil sold part, or a good bit, of Pioneer some years ago, which he managed for decades, many decades.

In fact, I first learned about Phil when I was leafing through Moody’s Banks and Financial Manual 40-odd years ago, and I saw this company with this great record and with some securities that looked terribly interesting.

So, we got in touch. And he was out in Omaha and we got acquainted. It — so, anybody that can get Phil to talk to them, listen carefully. I advise that.

WARREN BUFFETT: The question about American Express: we own just under 10 percent of American Express. And obviously, even though you mentioned they’re in a number of businesses, the — by far, the key, the most important factor in American Express’s future for a good many years to come — a great many years to come — will be the credit card.

And that is a business that has become, and will forever, probably, become ever more competitive. I mean, I followed it since — I think I met Ralph Schneider at the Diners Club in the late 1950s.

And American Express entered into the credit card business out of fear. I mean, they were worried about what the credit card was going to do to their traveler’s check business. Traveler’s check business had been originated back in 1890-something, I believe.

And that was, in turn, building off of the old express business where, I think, it was Henry Wells and William Fargo, they would chain themselves to the express boxes as they delivered them through the — to the West.

And they decided that maybe issuing traveler’s checks would a little easier — (laughter) — than carrying all this stuff around.

So, that — the traveler’s check was the — evolved out of the express business.

And the credit card business with American Express arose out of fear of what — particularly Diners Club at the time. They were all terrified of Diners Club, which got this — got the jump on everybody.

And they became enormously successful with it. And the American Express card, as you know, had a terribly strong position in what they called the “travel and entertainment” part of the card business.

And of course, the banks entered in on a big scale. And Visa’s been enormously successful.

So, the card has a strong franchise in certain areas, like the corporate card. Although people like First Bank System are very aggressive in going after them there.

The card — but the card has a significant franchise, but it does not have the breadth of franchise that it had many years ago.

For a while, it was “the” card. And now it’s “the” card in certain areas, but nothing like as broad an area as before.

It has certain, very important, advantages and economic strengths and it has some weaknesses. And you have to suss those, in deciding where it’ll be in the year 2000 or 2005.

And we think that the management of American Express thinks well about the question of how to — how you keep the card special in certain situations. And they’ve reacted to the merchant backlash for higher discount fees, I think, in an intelligent way.

So, we’ll see how it all plays out. But the key — IDS, which has now been renamed, but is a very big part of American Express — it accounts for close to a third of their earnings — but the real key will be how the card does over time.

Charlie?

CHARLIE MUNGER: Nothing to add.