Visa, One Smoking Hot IPO

All I can say is that I have no idea what it is worth. Maybe you can tell me. I just know there is too much speculation,expectation and hype surrounding Visa. Today, 2 weeks after the public offering, Visa stock and options are hot property on Wall Street. It seems like everyone wants a piece of the action, especially after witnessing Mastercard’s stock price grow at rapid speeds. Is there a risk though?

A Marketer’s Dream

No doubt about it. Visa has to thank Mastercard for getting such a huge and eager response to their IPO. Even my workmates were so excited about getting into it.
Lesson 1: Investing shouldn’t be exciting. Investing is boring.
The exception is for people like you and me who find the boring aspects of investing – fun and interesting. But excitement seems to cause people to do all sorts of crazy stuff. It clouds judgement, it creates anxiousness, it creates restlessness but worst of all, it just simply makes you do stupid stuff. (I’m still trying to figure out the hype around FLSR)

People I talked to also just couldn’t stop mentioning how they regretted missing out on Mastercard. Uh oh.
Lesson 2: Don’t fool yourself into thinking a stock will do what it’s competitor has done.
“Visa should do well because look at how Mastercard is doing” is only a gambling suggestion. It isn’t even a guesstimation.

What is the Value?

I like Visa. I really really like Visa. I like the company, the business model and its gigantic moat. BUT there are a few things holding me back.
1. I don’t know how to confidently analyse financial companies.
2. There is no history of performance and statements I can study and look up.
3. I can not come up with a fair or intrinsic value.

If you know the answer to all three points above, I would greatly appreciate it if you could show me your methods and reasoning. Otherwise, purchasing based on the noise and looking at the price of Mastercard is simply speculation.

I have no doubt Visa is and will continue to be a profiting company, but like I mentioned above, I don’t know for sure myself. I could always trust Wall Street’s number, but their main goal is to sell you something. So why bother listening or trusting them?

I’m Just a Fool

Visa bulls will probably call me a fool and want to wring my throat and that’s ok. I’m a fool in the sense that I admit I lack knowledge is a lot of areas and prefer not to take speculative risk. I also try not to get attached to my investments. Im ready to sell as soon as it hits my intrinsic value. One converse example I can think of is Google. With Google’s IPO, it was so hot you could get burned. But…. Google has a awesome moat, business plan, culture, innovation and prospect. It definitely was cheap at $100.

But there are more people that lose money from IPO’s than gaining from them. Simply because they didn’t understand the risk.

Risk comes from not knowing what you’re doing. – Warren Buffett

The Point of This Topic

The point isn’t that Visa is overpriced or overrated, the point is that IPO’s are way overhyped. You will also note that IPO’s tend to drop in price after a while. Look at BX, VMW and other hot IPO’s. This is also due to the lock up period where insiders cannot sell their stocks until a certain time has passed.

Also, there is so much expectation built into the price that even the slightest drop or forecast in earnings will send the price sinking like a rock.

Some Points

A few additional points to ponder regarding IPO’s.

  • There is no history and data to back up claims of value
  • Gamblers will jump at the opportunities to grab IPO’s for quick profits
  • There is so much hype that it could be set up for a freefall
  • IPO’s are just as hyped as the latest hollywood movie
  • Rather than speculating, why not invest your hard earned money in a low risk, solid, growing company.

As I like to say, invest intelligently.

Ready to try Old School Value?