The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market

by Tobias E. Carlisle

De Angelis was caught when the price of soybean oil plunged and he couldn’t pay his broker. The drop was so deep it wiped out De Angelis and his broker, too. Folks who had lent money against De Angelis’s warehouse receipts looked to AmEx to pay them back. They complained AmEx should have made sure the tanks contained soybean oil and not seawater. It was a good argument. They wanted $175 million, which was more than ten times what AmEx earned in 1964. It looked like AmEx would be wiped out, too. The market cut the stock price in half. Buffett became interested when he saw the stock price fall. AmEx was a tough stock to value. It was an insolvent lending business tangled in a fraud. Buffett wasn’t worried about the fraud or the $175 million payment. He was worried about how AmEx’s business customers viewed its credit. If they became apprehensive, they might stop taking traveler’s cheques and AmEx cards. Restaurants and small hotels could go out of business if AmEx was wiped out. If they stopped accepting the cards, AmEx was finished. Buffett was also worried that De Angelis’s fraud would stain AmEx’s brand in the minds of AmEx cardholders. If it did, people might stop using the AmEx cards. Buffett asked his broker, Henry Brandt, to find out if restaurants and other small businesses were still accepting AmEx. This was an unusual question from Buffett. He was usually only interested the hard data. Brandt staked out banks, restaurants, and hotels. Brandt delivered to Buffett a ...