VISA

[tengen]

EPS up 15% from the prior year. I'm not sure that's enough growth to justify the current valuation. On the other hand, it's a wonderful business model and they seem to execute very well. Funny how the risks today seem pretty much the same as three years ago (regulatory risk, potential disruption, lawsuits). Still holding.

[Liberty]

Buying Visa Europe for $20bn.

[orthopa]

Just saw this thread.

 

Reading through this comments seems like most everyone was stuck on the valuation back in 2010 when the thread was started and right fully so.  Split adjusted it was trading between 15-20 a share. Now at ~68. Seems like the valuation was fair for the growth Visa was going to experience.

 

I hold some (not as much as I would like) and still struggle with the valuation to add being a value investor but this appears to be a wonderful business at a fair price scenario.

 

Pure value investors are likely going to sit and watch this continue to become more valuable as they wait for the valuation to come in outside of a big stock market contraction. Especially with China on the docket and Visa Europe likely to get purchased.

[rishig]

Just saw this thread.

 

Reading through this comments seems like most everyone was stuck on the valuation back in 2010 when the thread was started and right fully so.  Split adjusted it was trading between 15-20 a share. Now at ~68. Seems like the valuation was fair for the growth Visa was going to experience.

 

I hold some (not as much as I would like) and still struggle with the valuation to add being a value investor but this appears to be a wonderful business at a fair price scenario.

 

Pure value investors are likely going to sit and watch this continue to become more valuable as they wait for the valuation to come in outside of a big stock market contraction. Especially with China on the docket and Visa Europe likely to get purchased.

 

The Visa Europe transaction is hairy. Currently owned by the European banks, they want to hand off all liabilities to Visa Inc. Similar to the US, the retailers in the European Union want to sue Visa and the banks want Visa Inc. to be liable for these charges (even if it from an earlier time). If you purchase for $20 billion, you could still be liable for another $5 to $10 billion over time.

 

As far as China opening up, based on conversations I have had with people in the payments industry, this is mostly a rubber stamp thing for China. They want to portray themselves as being a free trade economy. However, folks in the payment industry aren't very certain that V/MA can be very profitable. Banks are going to run very hard negotiations given Union Pay's incumbent position.

 

Having said that I am long MA/V since 2010 but at current valuations I am starting to think harder about what to do.

[Liberty]

Just saw this thread.

 

Reading through this comments seems like most everyone was stuck on the valuation back in 2010 when the thread was started and right fully so.  Split adjusted it was trading between 15-20 a share. Now at ~68. Seems like the valuation was fair for the growth Visa was going to experience.

 

I hold some (not as much as I would like) and still struggle with the valuation to add being a value investor but this appears to be a wonderful business at a fair price scenario.

 

Pure value investors are likely going to sit and watch this continue to become more valuable as they wait for the valuation to come in outside of a big stock market contraction. Especially with China on the docket and Visa Europe likely to get purchased.

 

The Visa Europe transaction is hairy. Currently owned by the European banks, they want to hand off all liabilities to Visa Inc. Similar to the US, the retailers in the European Union want to sue Visa and the banks want Visa Inc. to be liable for these charges (even if it from an earlier time). If you purchase for $20 billion, you could still be liable for another $5 to $10 billion over time.

 

As far as China opening up, based on conversations I have had with people in the payments industry, this is mostly a rubber stamp thing for China. They want to portray themselves as being a free trade economy. However, folks in the payment industry aren't very certain that V/MA can be very profitable. Banks are going to run very hard negotiations given Union Pay's incumbent position.

 

Having said that I am long MA/V since 2010 but at current valuations I am starting to think harder about what to do.

 

Thanks for sharing your current thinking. You are my 'go to' person when it comes to MA/V/PCLN :)

[sleepydragon]

AXP is a much better buy now at current price

 

[Guest JoelS]

What do you all think of Visa/MasterCard v Amex. It looks like Amex has a trailing PE of about 13.5 and forward closer to 13x with ROE around 29%. They just announced a buyback for around 15% of shares outstanding. That sounds cheap to me.

 

Is there an Amex thread? I couldn't find one. Thanks

[sleepydragon]

What do you all think of Visa/MasterCard v Amex. It looks like Amex has a trailing PE of about 13.5 and forward closer to 13x with ROE around 29%. They just announced a buyback for around 15% of shares outstanding. That sounds cheap to me.

 

Is there an Amex thread? I couldn't find one. Thanks

 

In 2008, I listened to a wall street trader friend of mine, and didn't buy AXP at $14. The rest was history...

Somehow AXP is misunderstood by many investors, including myself.

Visa/Master are actually technology companies, and AXP is a financial company. And thus the PE differences - maybe?

AXP has been losing card members to Visa and Master because there's a trend that stores issue their own Visa/Master cards and give customers more rewards directly. AXP boost about their customers service etc.. but I found their customer service is not really that good (two cases for me when I couldn't get refunds for purchases)

 

But maybe AXP makes money from people different than me. I know someone whose wife get her American Express bills  in a form of thick book, and there are chapters in it, every month! And of course, they use the $400 fee/year card.

 

I bought a lot of AXP recently. I think it's just getting too cheap, especially after the headlines of losing the Cosco deal. Hopefully this is an catalyst for management to do more.

 

I also noted the Buffett defended AXP on CNBC. He said Berkshire had already hit the limit of the percentage of AXP they are allowed to own. I found that's interesting: maybe Buffett might have added if they could.

 

 

[Jurgis]

But what's interesting was that he said Berkshire has already hit the limit of the percentage of AXP allowed by the Feds they can own. I found that's interesting: Buffett might have bought more if they can.

 

Buffett has hit the limit on AXP ages ago. BRK might have been keen to buy it numerous times since then - we will never know.

 

My reading on Munger and Buffett comments on AXP is "luke warm". But I might be wrong.

 

It's not cheap enough for me.

[Guest JoelS]

But what's interesting was that he said Berkshire has already hit the limit of the percentage of AXP allowed by the Feds they can own. I found that's interesting: Buffett might have bought more if they can.

 

Buffett has hit the limit on AXP ages ago. BRK might have been keen to buy it numerous times since then - we will never know.

 

My reading on Munger and Buffett comments on AXP is "luke warm". But I might be wrong.

 

It's not cheap enough for me.

 

At the Berkshire AGM, I took down the following, for what it's worth:

 

Qs: American Express. How does Amex protect it's moat?

 

There's a lot of loyalty with card holders. We're very happy with Amex.

Has a history of adapting. Feel like a more important person with your

American Express card. Delighted to own 15% of the company. Hope the

price falls so the share repurchase has a greater effect on their

ownership.

[Jurgis]

Right. Apparently B&M were more positive about AXP at BRK annual than M was at DJCO annual. I guess Buffett is just overall more positive. ;)

 

Feel like a more important person with your American Express card.

 

This has been discussed in the past on this site and I am not sure this is true anymore in US. I don't think there is consensus, but it seems most people don't see cachet in Amex. Perhaps there is still some feeling of exclusivity with Amex in other countries.

 

Anyway, I looked at AXP valuation again and I think that it has a relative value in the current market. On absolute it's not cheap enough, but investors might do better in it compared to a lot of other stocks.

[rishig]

But what's interesting was that he said Berkshire has already hit the limit of the percentage of AXP allowed by the Feds they can own. I found that's interesting: Buffett might have bought more if they can.

 

Buffett has hit the limit on AXP ages ago. BRK might have been keen to buy it numerous times since then - we will never know.

 

My reading on Munger and Buffett comments on AXP is "luke warm". But I might be wrong.

 

It's not cheap enough for me.

 

At the Berkshire AGM, I took down the following, for what it's worth:

 

Qs: American Express. How does Amex protect it's moat?

 

There's a lot of loyalty with card holders. We're very happy with Amex.

Has a history of adapting. Feel like a more important person with your

American Express card. Delighted to own 15% of the company. Hope the

price falls so the share repurchase has a greater effect on their

ownership.

 

BRK has not bought AXP since the 90s. It initiated its position in AXP in 1994-1995 and bought a few additional shares in 1998 but has not purchased any additional shares since then. It did not purchase any shares in the 2008-2009 crisis.

 

  Shares Owned Cost         Market Value

1994   27,759,941 723.9 819

1995   49,456,900 1,392.7 2,046

1996   49,456,900 1,392.7 2,794

1997   49,456,900 1,392.7 4,414

1998   50,536,900 1,470 5,180

1999   50,536,900 1,470 8,402

2000 151,610,700 1,470 8,329

2001 151,610,700 1,470 5,410

2002 151,610,700 1,470 5,359

2003 151,610,700 1,470 7,312

2004 151,610,700 1,470 8,456

2005 151,610,700 1,287 7,802

2006 151,610,700 1,287 9,198

2007 151,610,700 1,287 7,887

2008 151,610,700 1,287 2,812

2009 151,610,700 1,287 6,143

2010 151,610,700 1,287 6,507

2011 151,610,700 1,287 7,151

2012 151,610,700 1,287 8,715

2013 151,610,700 1,287 13,756

 

AXP split 3:1 in 2000. Do what Buffett does, not what he says!

[Guest JoelS]

As mentioned above, I don't believe BRK can acquire more Amex because its a bank holding company. That doesn't mean they would acquire more if they could, of course.

 

Jurgis, my impression was that Amex provides more value to cardholders in America than outside America. I will have to revisit that thread.

[Guest Dazel]

 

 

This is the single greatest investment idea (risk adjusted-its up about 5 times spit adjusted) I have brought to this board....ahh  2010...as you can see Visa will always be expensive...and there was very little following after I posted (crickets!). Huge moat...fair price, momentary negativity from government intervention....sorry took a trip down memory lane!

I do not see the same in AXP...but i wish I did!

[Jurgis]

As mentioned above, I don't believe BRK can acquire more Amex because its a bank holding company.

 

Correct. And this has been the case since before the 2008.

[SharperDingaan]

You might want to do some digging into Blockchains ... how they work, features, where they have been used. It is a game changer - right up there with how the internet and computers fundamentally changed the way we do business. The VISA moat is nowhere near what it used to be.

 

This technology has the power to replace the clearing function of all banks at a fraction of the cost, & eliminate all notes, credit & debit cards overnight - with a more secure & better alternative. The distribution channel would be through a Google or Apple, & you would use your smartphone as your wallet.

 

It is worth studying the often cited example of a bill replacement, & thinking along the lines of how many processed foods today have traceability from field to plate. We can do the same thing with a bill - from the source that issued it, through every transaction that bill has passed through - life to date; time in each hand, type of hand, size of transaction ... everything a central banker would love to have - & a bill that is totally FX neutral (no need to ever change from currency X to currency Y & incur the FX conversion costs & risks)

 

http://en.wikipedia.org/wiki/Bitcoin#Block_chain

http://en.wikipedia.org/wiki/Blockchain.info

http://www.theguardian.com/technology/2015/may/13/nasdaq-bitcoin-blockchain

 

Re disclosure, I am currently doing a research thesis on the currency replacement side of BlockChains. The BitCoin was a proto-type & a simple 2G version of what can be done; the 3G & developing 4G versions are truly game changing.

 

SD

 

[wachtwoord]

Do you have interesting outcomes to share? (In the Bitcoin topic perhaps). I still hold the viewpoint that the chance of XBT making it (over what you call 3G and 4G) is vast so I'd like to hear arguments against it.

 

At least you're not in the camp of people that think the Blockchain can work without a currency aspect lol  ;D

[Sunrider]

Do you have interesting outcomes to share? (In the Bitcoin topic perhaps). I still hold the viewpoint that the chance of XBT making it (over what you call 3G and 4G) is vast so I'd like to hear arguments against it.

 

At least you're not in the camp of people that think the Blockchain can work without a currency aspect lol  ;D

 

Main reason I see is technological - the bitcoin implementation of the blockchain (think: ledger) is inefficient - all clients need to have the entire ledger (several gigabytes).

 

There are solutions to this: Check out Ethereum (very broad vision) and the papers they publish, which should give you a very good overview.

 

Also check out for an easy intro and interview: https://www.singularityweblog.com/vitalik-buterin-ethereum/

(actually, if you're interested in exponential tech, etc. then you may want to explore that site - disclaimer: I went to University with the site's author).

 

Cheers.

[SharperDingaan]

We think of blockchain in terms of currency, because Bitcoin was the first poster-child application. The technology is actually better suited to applications where cheap & reliable traceability is a dominant concern. The food processing, drug manufacturing, & provenance (diamonds, art, etc.) applications - that we are currently very far away from.

 

As blockchain itself is easy to isolate; multiple, & segmented designer crypto currency is no big deal. The currency used to buy coffee, groceries, etc. is not the currency that drug dealers, weapons merchants, or states would use. It is also not the currency that would be used to settle day-to-day business to business transactions. Not because it couldn't be done, but because each application has different requirements.

 

The currency application is very much in the central banking interest, & increases the effectiveness of monetary tools by orders of magnitude; but it would also be incredibly disruptive to banking as we currently practice it. Not an immediate threat, but it is coming. The first internet site as we commonly know it, was created in 1993 or thereabout; 28 years later, can you imagine anything where there is NOT an internet site to go to.

 

We do not wish to hijack the thread; but merely point out that the advantage WEB had way back when - WAS WAY BACK WHEN. In investment parlance this thing has basis risk, & the risk comes with exponential growth. All it needs is for something like a BITGOLD, and a western central bank guarantee, to take off in an India or Africa - where a women's wealth is stored in the jewelry she is wearing, & saved for in little bits.

 

SD

 

[wachtwoord]

Thanks to both :)

 

And no, the blockchain doesn't have much value without the currency aspect as that is what causes the extremely high distributed security. It's funny how few people seem to get that ;)

[Hielko]

Thanks to both :)

 

And no, the blockchain doesn't have much value without the currency aspect as that is what causes the extremely high distributed security. It's funny how few people seem to get that ;)

+1

 

And thinking that blockchains can replace the clearing function of banks and other institutions at a fraction the cost is in my mind ridiculous. The reason is that the security of the block chain is provided in very inefficient way by throwing a massive amount of brute force computer power at it, and as a result, a massive amount of (expensive!) resources.

 

At the moment the bitcoin network only processes ~100,000 transactions a day while the network probably consumes the output of multiple power plants (assuming that mining can be done at 1Watt/gigahash the network would now consume 360MW). That's insanely inefficient! My own PC could probably process 100,000 transactions per minute or something like that while consuming a few hundred watts. There is simply no way that this will be a good alternative for the current infrastructure that is a million times more power efficient.

[HJ]

One thing to think about is the fact that V and MA came to their current business form in unconventional ways.  They were essentially cooperatives operated by the banks, and were able to leverage off the massive distribution power of the banks to make their services and products almost ubiquitous to the society, even though Diners Club, and then American Express had much earlier starts.  Most normal businesses aren't built this way.  In a way, it's kind of the triumph of the bank distribution power over alternatives. 

 

I would venture to guess that unless bitcoin gets the banks to be on its side, the moats of V and MA are quite secure. 

[SharperDingaan]

Some last comments, & we will leave at that.

 

Agreed the current structure is processing intense, but it is not a big leap to materially & rapidly reduce it. Your local telephone exchange already does a version of this, routinely, digitally - & every day of the week. It would be a good intermediate process iteration, but it is not especially efficient.

 

Its notable that the Canadian banking lobby has just recently begun to strongly push the consumer protection side of any financial transactions that may occur on Google - via a blockchain application. Not the kind of thing you would expect of confident bankers.

 

SD

[Hielko]

Agreed the current structure is processing intense, but it is not a big leap to materially & rapidly reduce it.

How? If the network needs less resources to operate it becomes vulnerable to an attack because security is only provided by the fact that it is not feasible to control 50%+ of the network's computing power because that would be prohibitive expensive. You cannot have both an efficient network and distributed security.

[SharperDingaan]

Every IT system in the world backs up the days transactions every night & adds them to a master file. The data is typically screened on the way in through a series of buffers to remove the viral threats, then stored in isolated silos; that progressively re-test under tighter criteria, & eventually merge over time (hours to days to weeks to months to years). Static data, isolated, & very hard to corrupt.

 

Intraday transactions are typically stored in buffers, until they back up to the master file. Nothing prevents more frequent back-up, & nothing says the backed up file has to immediately go to the master file. Store the intraday transactions in multiple servers & you have distributed security; change the backup frequency, & you change the security level.

 

Most IT systems (telephone) take data strings, store by component, & reassemble via an algorithm. Nothing prevents storage of multiple versions of components over random servers, & then testing the copies against each other to verify veracity - prior to back up. Routine, automated, tick & bob - that computers are extremely well suited to.  Hard to reliably corrupt.

 

This is the simple 3G type stuff - & nothing that we do not know how to routinely do already; processing power is not a problem.

 

SD