Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.
But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how members of the S&P 500 have performed compared with the index itself.
Step on up, American Express
American Express shares have crushed the S&P 500 over the last three decades:
Source: S&P Capital IQ.
Since 1980, shares returned an average of 14.1% a year, compared with 11.1% a year for the S&P (both include dividends). That difference adds up fast. One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In American Express, it'd be worth $68,400.
Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up about two-thirds American Express' total returns. For the S&P, dividends account for 41.5% of total returns.
Now have a look at how American Express earnings compared with S&P 500 earnings:
Source: S&P Capital IQ.
Again, pretty good outperformance. Since 1995, American Express' earnings per share have grown by an average of 8.5% a year, compared with 6% a year for the broader index.
What's it all meant for valuations? Not much. American Express has traded for an average of 23 times earnings since 1980 -- just a hair above the 21 times earnings for the broader S&P 500.
Through it all, American Express shares have clearly been outperformers over the last three decades.
Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks American Express with a four-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add American Express to My Watchlist.
Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool has created a bear call spread position in American Express. Motley Fool newsletter services have recommended creating a write covered strangle position in American Express. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.