Should You Invest in Visa? A 5 Month Update

by Kevin on August 15, 2008

Back in March, I wrote an article that I titled “Should You Invest in Visa?” At the time, Visa was very new to the stock exchange, having just experienced their IPO. At the time there was a lot of hype surrounding the stock. People compared it to Mastercard which had experienced 381% growth over a two year period.

I argued at the time that there was no guarantee that Visa would experience the same growth. I also mentioned that my wife and I would not be investing in Visa because individual stocks did not match our current goals. (If they had, I would have looked at Visa.)

So, was it a good call? Let’s take a look at Visa’s stock price since then. March is the furthest back the chart goes on the left.

As you can see about one month later at the end of April, Visa began to climb, dipped a bit, and then settled back down in the mid 70’s. As of the close yesterday, August 14, Visa traded at $75.78.

Should you have invested in Visa?

As you might imagine, “it depends”.

  • If you bought at $60, when I told you I wasn’t buying, you’ve earned a 26% return (before trading costs). That’s very, very healthy. You look like a genius.
  • If you bought into the hype, but wanted to see if Visa was going to be like Mastercard you may have gotten burned. If you waited until the top — $89.84 — you’ve lost 15%. I look like a genius.
  • If you bought somewhere in between you might not be content because your investment hasn’t gone much of anywhere in 5 months.

What’s the lesson here? Don’t look at short term gains. Even if you bought at the peak of almost $90, you may still be getting a steal on Visa if it jumps to $250 per share. Then again if Visa never rises above $80 again, you’re going to take a loss on the shares.

I stick by what I said back in March. Buying individual stocks is not part of our plan right now. I prefer diversification with the size of our portfolio currently. In the future, I might dabble into individual stocks with up to 5% of our portfolio. Right now that 5% isn’t even worth trading because the trading costs would be too large of a percentage of the investment.

I’m going to continue to track Visa. I’ll be happy to admit when I’m wrong. Again, it depends on your goals. Right now, buying Visa doesn’t make sense for our portfolio.

What about you?

{ 1 trackback }

Festival of Frugality No. 139: The Michael Phelps Edition | Our Fourpence Worth
August 19, 2008 at 8:09 am

{ 5 comments }

Casey August 15, 2008 at 12:52 pm

Admittedly, buying Visa didn’t make much sense for us either, but it’s IPO was on the same day as the IPO for the company my husband works for (and we were planning on buying some of that stock, CardioNet). So, I read the prospectus and thought about it and since the brokerage account we had opened with USAA was giving us a bunch of free trades we went ahead and bought a couple shares.

Certainly isn’t doing as well as the CardioNet stock which has nearly doubled in the past 5 months, but can’t complain. Am I dang lucky that the outcome was positive since I went more with gut feelings than actual knowledge? Hell yes!

Kevin August 15, 2008 at 7:20 pm

@Casey: Thanks for the insight. Are you holding on to both stocks, or selling?

Many people say having a large portion of your investments in your employer is asking for disaster. If the company goes under or your husband loses his job, the stocks could be worthless. Double whammy. (Not saying you have a majority of your investments in it, just some advice.)

Casey August 15, 2008 at 8:39 pm

We are currently holding both because they represent a very small portion of our invested money. Planning to ride out Visa long-term and see what happens. The company stock I’m not sure about because we just started participating in their ESPP, and I’m concerned about exactly what you mention, becoming too heavily invested in his company.

Financial Planner August 17, 2008 at 6:59 pm

I’m buying individual stocks and will continue to do so. The investment cost isn’t that large ($7) if you are confident that a stock is underpriced. That said, I don’t like Visa and didn’t last March either… I agree with you on that.

Kevin August 17, 2008 at 7:39 pm

@Casey: I see. Good stuff.

@FP: I understand the philosophy at buying at a decent margin of safety. Nonetheless, I only want a small portion of our portfolio being run by an amateur (me). So once it gets big enough, I may switch 5% or so to that task and try to follow in Buffett’s steps.

Comments on this entry are closed.