Again and again I hear talking heads on the boob tube talking about how sitting on a diversified portfolio over the long haul is a great way to invest your money. And while that’s a safe bet, unless you get lucky, the chances are pretty good that you’ll never make a ton of money doing that.
If you want to make good money you have to catch the waves. You have to keep your money moving in and out of the opportunites as they come along.
It’s not fire-and-forget. You have to get in the game. You have to get involved in your own investing.
There are two kinds of stock plays I really like:
- Buying small to mid caps on bad news
- Can’t-lose IPOs
Both of those plays will give you better than average returns. And you can make anywhere from 200% on your money in a couple weeks to 500%+ in a year or two. A lot better than the run-of-the-mill 10% annual return you’ll make in a diversified mutual fund.
IPO Plays
There are lots of IPOs, but every once in a while something really good comes along.
It’s been 3 years since Google went public and it’s rocketed up 700% since then. And it was pretty much a sure bet from the very beginning. The barrier to getting in now is the high price and the question of how fast Google can continue to grow. They will grow, but how quickly they grow is what will determine the price (and the returns) over time.
Another great play happened last year. Mastercard, the number 2 credit card processor went public in May 2006. It opened up at around $40 a share and after a year and a half it’s up to almost 200 bucks. Sweet. But again, how fast will they keep up this pace of growth.
Don’t you wish you got in at the very beginning. Enter Visa …
Visa is the number one credit card payments processor in the world. And they’re set to launch their IPO early next year (February I believe). I haven’t read too much about the pricing but I would guess it’ll be anywhere between $60-100 a share.
Now I know what you’re thinking … credit card debt is a bad scene right now. The bottom could drop out of the stock if people don’t pay their CC bills right? Not so fast.
Like Mastercard, Visa is a payments processor. They collect fees for processing the transactions but they don’t lend money. They don’t take on that liability, the banks do. So if the economy is good, people are out spending and using their credit cards … yay Visa. If the economy is bad, then people rely on their credit cards to weather the storm … yay Visa.
If you’re looking for a place to park some cash for a couple years and get a good return, the Visa IPO is looking like a good place to do that.
Who says credit cards are a bad thing.
some of the things that people forget are:
1 – we’re moving towards a cashless society; some would argue that it’s already happened (the vast majority of wealth are ones and zeros on a hard drive somewhere). The best guess is that less than 15% of hard currency actually supports the digital wealth that exists in your bank account statements.
2 – if you subscribe to “debt as money” philosophy of wealth creation (at the macroeconomic level), credit bureaus are the gatekeepers of economic progress (and they haven’t been doing a very good job lately). The reality of the matter is that your local bank is probably incapable of actually evaluating credit risk on an individual basis. Almost every bank loan officer out there relies heavily on equafax, Experian, TransUnion, or CBC to asses credit worthiness. Outside of collateral, internal bank and tax records, these bureaus are all that banks have for making decision regarding the loaning of money. These credit reporting agencies are heavily dependent on transactional records… the single biggest measure of the accuracy of a credit score is the degree to which the consumer is opted-in. If consumers execute the bulk of their daily spending via credit cards, it’s a fair bet that, in Shawshank Redemption terms, they’ve “been institutionalized”. Visa’s real-time transaction information will tell you when someone cuts up their credit card (loses faith in the system). and automatically becomes a higher credit risk.
So… yeah… Visa is probably a good bet. In fact, the core reporting bureaus probably won’t let the Visa IPO fail.
Hey Anon,
Your first point is a good one. Somewhere above 95% of all financial transactions in the world are speculative (on paper) and have nothing to do with real goods (chickens, eggs … Ferraris). The real issue there is that at some point the real wealth cannot support this paper wealth. We’ve seen lots of corrections (like the dot com crash), but they’re never really big enough to reset this imbalance for the long term (50-60 years).
It’s true, banks don’t personally know most of their clients and all they have to go on when giving credit is your credit score. The big credit problems we see today are because the banks have tried to pull in more profit by giving credit to higher risk people. They’ve also made it harder to declare bankruptcy. What this has done is create a large group of people who are stuck under a mound of debt.
I’ve been in debt, and to me, I only had myself to blame, but the banks are definitely opening the gates a little wider to capture more people they know will STAY in debt.
I don’t know if the credit reporting bureaus have enough financial leverage to make or break the Visa IPO, but a lot of institutional investors will see it as a good stock to have in their portfolios. And those big investors have the cash to move mountains (and markets). Visa has a good business model with a lot less risk than most people might think. And it should be noted they are much larger than Mastercard when it comes to debit card processing as well. This gives them some good diversification if people should start cutting up their credit cards in favor of using their debit (cash) cards.
can someone tell how i can participate in the visa ipo ?
Hey Sal,
It can be difficult to get into an IPO like this. Many brokers and online trading sites simply won’t have access to the IPO, and most others will only allocate a buy-in position for their best customers.
The best thing to do is to start talking to different brokers and see if anyone is willing to let you in. Barring that, once the IPO is released and starts trading, anyone can buy the shares. You won’t get the best price that way but if the stock doesn’t rocket up before public trading starts you might be able to get it at a price you’re comfortable with if you plan to hold onto it for awhile and let it grow.
i just bought 174 shares of tha VISA stock…i hope it does as well as mastercard. Ill take yall out to lunch!:)
Hey Nick,
Nice move. A buddy of mine bought 300 shares at $60 on day one. He’s got the trading jitters because it’s up and down … which is exactly what mastercard did – the day traders and institutional investors are gonna rock the Visa boat back and forth for a while and shake as much loose change out of it as they can.
I expect it to start climbing in the next few months, once they report some earnings, make some moves with all this cash, etc.
Then we’ll talk about that lunch! 😀
I had goog when it first came out at $115 and sold it before $175
I also had MA at $44 and sold quickly I waited forever for those stocks to come out and sold every time when the market went red; I will not make the same miss guided play with visa I’m keeping this until I’m old and gray. Thank you
Hey Ernest,
Don’t beat yourself up over selling early … getting in late and getting out early can be the smartest thing an investor can do … you ride the wave as far as you’re comfortable with it, then hop off and catch another.
That’s the best strategy with most stocks. It’s with these fresh IPOs of world class brands that you can generally park some cash for a longer term.
I bought 85 shares of visa on day one for $55, I’m kicking myself now cause I should have bought more… not gonna cry about it though cause I bought another 150 shares for $86 today, hoping it will go over $100 by the beginning of June
Hey Robin,
Don’t kick yourself too hard … you got a piece of it and that’s what counts. Nice to see you caught the $55 dip on day one!
Visa stock very well could break that by June. It’s very bullish and personally (hate to bet against you – haha) I think there’ll be some profit taking. Which I’d like to see because there are some great options plays but they could be a little better.
Visa stock certainly seems to have more up days than down days, but unfortunately, when it goes down, it falls a bit hard. Overall though, it looks like the stock is taking more steps forward than it is backward. Last week, it went up Monday through Thursday, and dropped on Friday. This week, it went up the first three days, and down yesterday and today.
Where do you think Visa will be at, say around May 19th (two months after the stock has been available to the public)? And for that matter, at its half year mark (the middle of August), do you think it’ll be up to $125 by any chance? Seeing as how Mastercard went up approximately 2.5 times a share in 6 months, I think something similar could be in store for Visa.
Thank you for taking the time to respond to these comments; I think we all can agree that we appreciate it. Hmm, last but not least, you don’t think there’s too great of a chance for Visa to plummet, do you?
Hey Investor,
Visa is going to go up and down. It’s a very strong stock and a fast mover so you’re going to see some heavy investment and some heavy profit-taking.
As for what the price will do and when, I don’t have an answer. Nobody does and nobody could. I don’t read the predictions analysts make because they’re wrong most of the time. I also don’t look at the analytical data too hard …
I invest in strong brands. I invest in success. And I invest in strong sectors. With that, I’m bullish on Visa and I don’t sweat the details.
If you want to drill down and take some specific risks, be comfortable with that risk. Be patient. And be comfortable with the outcome no matter what it is.
Hey Shane, thank you for getting back to me so quickly. Do you know when is Visa’s month for announcing its earnings report? That’s the next period where I expect to see a rise (but who really can say for sure), but don’t know when is it.
Also, is the main reason (or at least a big reason) for the Visa stock, going up and down so drastically each time, because there are some really big investors, constantly buying and selling their shares?
Overall, I always say that patience is a virtue, so I’m calm until then, I’m just not certain what exactly makes stock (this one in particular) go up and down. Have a good one.
Investor,
I think July is the next Visa earnings report. I’m sure there’ll be a lot of volatility before and after.
The big fluctuations are based mostly on trading volume; it’s a combination of big investors, day traders, and everybody else …
Generally the big boys start a trend in one direction or another, then the day traders pile in, and then everybody else follows. So, once they get some momentum going (up or down) it keeps going until the big boys turn it around and either take profits or get back in.
Patience is a big part of the game. I think a lot of people get into day trading because they want to make something happen now. That’s just too much work for me – haha. At the same time, patience is a very difficult thing to master and you can’t be so patient that you miss all the great opportunities.
I think your advice thus far re: Visa is spot on. You have to be patient with a new stock. I was a little worried these past few days when I saw the stock fall from $87 to $81+ but that is to be expected. Visa is a strong company and the stock will eventually surpass MC.
Go Visa.
Cool, Shane…thanks again. And to Bryon, I know what you mean. I’ll be very happy when Visa is fluctuating, $5 this way or that way, but in the high 90’s.
Here’s to us early investors!
Bryon,
That jittery emotion when the stock goes down is basic human flight or fight instinct. It’s one reason why there’s no room for emotion in investing – it causes a lot of people to buy high and sell low.
Investor,
I think Visa will bring some nice gains through June. 😀
That’s very good to hear, Shane. Do you think that Visa will go up in June, because summer vacation is coming and people will spend more, because of Visa’s financial reports, will be coming the next month, or what?
Whatever it is, I’m looking forward to the 90’s…oh yes indeed. 🙂
Investor,
Anything can happen, but you’re right on the money; summer spending and the upcoming quarterly is why I think it’ll move in June.
There’s a real tug of war with Visa right now. The short sellers are rocking it back and forth as hard as they can.
Also, the Capital Hill credit card hearings are scaring a few people. That’s not going anywhere that will affect Visa’s earnings – they’ve got the banks on their side and there’s no upside to the proposal for consumers. It’s just the big retailers trying to fatten their own margins. The whole thing is nothing more than political posturing.
The Visa bulls will win this in the end. It’s a very strong company and it’s inevitable.
Yeah, Visa has been pretty strange in the last three weeks. It seems to be struggling to get back in to the high 80’s. Like you said though, Visa will win in the end, and within the next month, it’s probably safer to assume that it’ll go up, than go down. A little bit of time and a lot of patience.
All I can say right now is, darn Captial Hill and darn Fat Cats!
By the way, when you say “the short sellers”, are you referring to the investors that have huge piles of money in the company, and are buying/selling everyday?
Also, why would they want to rock the stock’s worth back and forth, so greatly? Isn’t to everyone’s advantage if the stock continues to rise?
Today it dropped yet again, and it’s definitely a sore sight to see, when in comparisson to Visa’s first 6 weeks or so on the market.
I like this Q/A setup you have here. It’s good to become educated about the market and the stocks you’re invested in.
Hey Investor,
I get the feeling the drop is making you uncomfortable. It’s always been my view that Visa is a long play (1-2 years at least). And a lot of volatility is going to happen in the short term, precisely because it is such a strong company.
There are a lot of things that happen with short selling. Here’s an example:
Say you buy a truckload of a strong stock at $10/share. It goes up to $15, so you buy a bunch of put options to short the stock at $12 and then you start selling your stock.
If you start selling at $14.50 then $14 then $13.50 you can literally create momentum that drives the price down. Your put options go up in value and you cash those out too and make a bundle. Then you start buying up the stock when it’s down. The price goes back up. Rinse and repeat.
The big, big investors (institutions, hedge funds, etc) have the cash to start this kind of momentum. And the day traders add to the momentum by jumping on to these trends.
So, most investors will make money with stocks when they go up. But these guys do this all day long. Everyday. It’s their job and they have to have something to do. So they make money by swinging stocks up and down.
If the company is strong, and most importantly, if it can make money, the stock will go up. Especially once the big index and pension funds buy it and hold it for an extended period. Then there’s less trading and less volatility and the short sellers can’t play these games as easily.
It just takes time to get to that point. Visa is still a young stock.
Well, I certainly don’t like seeing the RED, and yeah, it is a bit of an uneasy feeling, but I’ve had different stocks in the past, most of which were with companies that were around for a long time, and you could pretty much gauge by the month (looking at past year’s trends), what the stock was going to do; either go up or down.
With Visa, since it’s still so young like you said, there’s nothing to base off comparissons, year to year or otherwise. It is a waiting game and a pretty safe bet that the stock will make us big money in the end, but there always is that tiny bit of discomfort on the early journey, when you see such big, negative fluctuations. Thanks for the feedback, again.
Hey Shane, it looks like leading up to Visa’s June announcements, the stock has reached nearly the level it peaked at before. I wonder how much fluctuation will it have between now and then…
Investor,
It’s hard to say. There certainly will be some, but all the fundamentals are lining up nicely; card usage is strong, and institutional investment in Visa is rising. This fall we’ll see some significant rollout of Visa’s mobile payments platform and some other good things.
All I can say is, I like it. 😀
Hmm, Visa’s mobile payments platform…I’m not too familiar with that. Would you mind elaborating? I’m satisfied with the stock right now. It’s still very new, like you said before, but it’ll eventually become a heavy hitter, which is why I’m so glad that I hopped on the bandwagon, now, and not when it hits 200 down the road. 🙂
Mobile payments encompasses a lot of ideas. It includes everything from making a purchase with your cell phone at say, a vending machine or other point of sale to transferring money between mobile devices.
It’s another channel for performing transactions and the next step in the evolution of digital cash. I think it’ll take some time before mobile payments really becomes ubiquitous, but it will be a strong component of Visa’s earnings in the future.
That’s awesome and makes a lot of sense. The more avenues to use a credit card in, the better off the company is. Is June 16th the day that Visa announces its earnings? Hmm, it’s all good though, because this is one company that I’m in for the long haul.
Hey Investor,
Next Visa earnings come out the end of July (every 3 months).
I’m holding for the long haul also. I’ve been looking at trading in and out with the breaks, and I still may do some of that, but there’s a little voice inside my head that keeps whispering “plan your trades and trade your plan”.
Since my original plan was to hold long, that’s what I’m doing for now. I think we’ll see great performance for the remainder of the year, but in 2009 I expect Visa shares will really start moving.
Oh good, so towards the end of July, we’ll probably get a little boost. That’s cool. And yup, I know what you mean about possibly doing some small trades within the months, since there have been several times where it was profitable to do so. Overall, the long haul is the safe bet, but if you could make small money here and there, it might be worth it…
What do you guys think of Visa stock now? It looks like it’s gonna crash..big time!
StockDork,
Anything can happen. I’m not concerned about it. There are a lot of different investing philosophies and many people see a dip as a buying opportunity … and others like to buy high and sell low 😉
StockDork, I think that Visa is going to go up from the end of June through early August, but with a bit of economic uncertainty, oil on the rise, and casual talk of a possible recession, you just don’t know what will happen 100% with the company. I still agree with Shane, though, in that Visa will be a long term highly profitable investment.
Say Shane, do you think that Visa is going to drop again to 75 before going back up to 85 like it did last time, or is 80 the new low, and 90 will be the new high? I know it’s just about impossible to predict, but in your educated opinion, what do you think is going to happen in the coming weeks? Thanks as always.
Investor,
The only thing for sure is anything can happen. I’m confident of good gains over the long term but I have no idea what will happen over the next few weeks. None. The whole market is all over the place.
The consolidation trend looks to be around $82-83 right now. Until we get some news, it looks like it’s just going to bounce around for a while.
Hey Shane, it’s been a pretty good past week for Visa, and their financial date is coming soon (you said July, after all), so that’s cool for us. Originally I was planning on buying low and selling super high, down the road. Now, I’m buying and selling throughout a couple week period, to try and make a little here and there, but still have enough money in it for the long road, to pay off big…eventually.
Is it still a good time to buy the Visa stock?
Hey Kunaka,
That’s really something you have to answer for yourself. It depends on what your goals are, your risk tolerance, what your investing style is.
My view is that it’s a good addition to any portfolio. But know that Visa isn’t going to hit $300 next month; it’s going to take a little time. 😀
… and that’s a big thing I see a lot of investors get stuck on. They buy in at say, $85, see the stock drop to $75 and get scared. They pull out and get extremely discouraged with investing in the market. Stocks go up and down. The best of them do. At the best of times.
If you’re in long term, those price swings don’t matter so much unless there’s a strong fundamental reason for them. If you’re day trading, swing trading, or trend trading, they’re everything.
IF WE GET A BEAR MARKET , WILL VISA FALL OR WILL IT BE OK????
I’M NEW TO ALL OF THIS AND I HAVE ALOT OF MONEY ON VISA FOR THE LONG RUN …. IF SOME ONE CAN HELP AND GIVE ME A GOOD ANSWER… THANKS
Hey John,
Long term, it all comes down to earnings and growth.
You need to look at what Visa is doing or not doing and decide whether you think they can earn and grow. The next quarterlies come out July 30 and I think that will tell us quite a bit about how they’re performing in this economic climate.
My personal view is they will break through the $82-83 topside resistance the second half of this year. They could break through that resistance with a vengeance, but the whole market is still teetering thanks to the financial crisis which isn’t over yet, so maybe not.
I expect the real movement is going to come during the course of 2009. That’s when we’ll really see this stock light up the charts.
SHANE THANK YOU FOR YOUR ANSWER…
Shae, One more question, why would Jim Cramer from MAD MONEY tell everyone to get rid of Visa and put it on Master Card last night?? He said that”the money was made and now it’s time to get out and buy Master Card” does he know what he is talking about?? THANKS AGAIN
John,
There are a lot of different investing strategies. Anyone who got in on the Visa IPO has almost doubled their money; not bad for 3 months work. Whether you want to hang on for bigger profits down the road depends on what other opportunities you see that might have more potential.
There’s a time value – if you can make more, and faster, somewhere else, then it would make more sense to invest somewhere else.
Cramer clearly favors Mastercard over Visa and that’s one opinion. I favor Visa and that’s another. Some people don’t favor either, and so on and so on.
There’s nobody that’s right all the time. We all just look at the information and make investing decisions based on what we believe will happen in the future.
Your best bet is to not listen to Cramer or me or anyone else, but educate yourself on what makes a strong company capable of creating strong growth and strong earnings. And then when you read what analysts have to say, extract the facts and discard the opinion.
In the end, it’s only your opinion that matters.
Hey Shane, long time no talk. Ouch! Visa took a $14 dump from its highest mark to what it’s at today…though it has gone up and down since it’s price of $89 a share, so it’ll be back up soon enough (hopefully). You said before that Visa’s financials report takes place late July, and that’s in a mere 3 weeks, so probably by then we’ll be seeing the stock back in the green. 🙂 Here’s to the long road!
Hey Investor,
It’s ugly out there, but it looks like we might have a rally on the way. That, and some nice fundamentals at the end of the month should give Visa a nice boost.
A rally would rock, so here’s to the end of July. I dream of the 90’s, haha.
Shane, How do you think the Summer games in China will affect Visa’s. stock value? Being the sole credit card accepted at the games should help. Also do you think Mastercard and Visa will settle with Discover prior the trial in Sept.? If not, how long do you feel that trial will last? I bought 10,100 shares of Visa at an average price of 69.20 a share. 4500 shares cash, 5600 margin. I hope I can hold out for a year or so.
Investor,
You gotta dream bigger … turn that 9 into a 10 😀
Hey Russell,
The games will be great exposure for Visa in Asia. And hopefully there isn’t a dip so low as to force you into a margin call. Improbable, but certainly not impossible.
The Discover situation is a little weird … they seem hell-bent on taking this to court which is foolish. DFS shareholders should be taking this issue to the board …
Court is 50/50. Always. If Discover wins, they could get a huge payday, but if they lose, they get nothing except a massive legal bill and personally I think if DFS lost that would be the beginning of the end of their business. And that’s not good business, that’s just gambling …
Regardless, Visa is in a better position than Mastercard with this case because they have money set aside from the IPO. Visa also has a cap (the amount set aside) with a committment from certain banks to pay the rest if the settlement goes over the cap. So Visa’s exposure is limited while Mastercard doesn’t have anything like this in place.
I think Visa can perform in this bearish market, but who knows – I guess we’ll see how things look on July 30.