Came across “VISA – I Will Never Sell This Holding” by Charles Fournier.
This article inevitably aroused much debate on “forever” and “never”.
Our intention is not to join the debate of whether there is a stock you can hold forever.
But the author concluded:
“While Visa is certainly not a bargain at current levels, any investor with the intent of holding it for the long term could do no wrong by purchasing it at these levels.”
So, let’s exam whether it is a good time to buy VISA from two basic principles and two aspects, fundamental and pricing channel.
Principle 1: Buy the value and when the value exceeds the price.
Principle 2: Buy and Hold till the Channel Breaks.
To elaborate on principle 1, let’s quote Mr. Lynch and Dr. Elder again. “Buy the right stock at the wrong price at the wrong time and you’ll suffer great losses.” said Lynch. Elder said “When the prices hit the upper envelope, they are overvalued. They can continue to go higher, but I’m not buying. I’m a value trader. I aim to buy below value and sell above value.”
Now we proceed to look at the monthly chart of VISA. Obviously, it formed a beautiful monthly channel from 2009 till now. The price has gone up from 10.44 to 83.96 in the recent high. It is almost a ten bagger in Lynch’s term. Can it grow another 10 times or 3 times?
We do not know the answer.
When a stock has grown a lot, it is safer to use the band-trading or range-trading tactics to prevent yourself from getting into trouble. The difference between band-trading and to build a position for buy-and-hold are illustrated at the end of this article.
For those already profit a lot, it is advised to take some profits when the price reaches the upper wall of the monthly channel, and to take most of the profits if the stock goes skyrocketing after a long bull.
For those who do not have a position and try to follow Mr. Fournier’s suggestion to buy now, it is better to follow the band-trading tactics.
To do so, you buy some at the monthly channel-buy-point. That is when the price touched the low wall of the monthly channel and bounces back into the channel.
Whether to carry out the buy-and-hold strategy, one need to consider whether VISA will continue to grow substantially.
For fundamental aspects, we think Mr. Fournier gave an excellent and concise summary on why you could continue to buy V based on the current and past statistics.
However, we like to offer some of our observations.
- The growth of VISA. We think its growth was driven mainly by
- Money printing lead by the US, China, and followed by Japan and others.
- Millions and millions of Chinese people, after over a century of misery, were finally capable of going out to see (to shop) the world. But the credit card (UnionPay Card) issued in China was successfully blocked by VISA from using UnionPay’s system outside of China in 2011. So, what do they use? VISA, MasterCard, AE, Discovery. Mostly VISA.
- Get into China’s domestic market ($8.4T in 2016) with VISA payment system?
- Potential competitions or threats. As Mr. Fournier mentioned, the business model is so good, with little risk and high return, who wouldn’t want to have a piece of it? To name a few:
- Big online e-commerce companies, like Amazon and Alibaba. Alibaba is already doing it in China – with its own payment system, its own credit or pretty much its own banking system.
- Big online platforms, like Apple’s App Store and Google’s Play Store. They are lords of most application software developers.
- Social networks, like FB and Tencent. Similar to Alibaba, Tencent has its own payment system.
- Third party payment companies.
- Cell phone companies. They have the billing systems and may be the major beneficiaries of the trend, paying most everything via cell phones.
- Political powers and regulations. Wrestling between VISA and UnioPay.
VISA’s good fortune is tied to global wellbeing. We don’t know if the current housing in China is a bubble; if the stock market of the US is a bubble; how big the bubbles can grow; or when they will burst. But obviously, the situations are quite alarming. We do hope VISA continues to grow just as we wish the US, China, and the whole world continue to prosper.
So, with the price being 10X, our suggestion is to play safe.
If you think VISA can fend off all the challenges and want to buy and/or hold, then use the channel to protect yourself in the holding or developing of your position.
For holders, sell some at the monthly-sell-point or when the price breaks up the up-channel. Sell most or all of the position if the monthly up-channel is broken down.
For buyers, buy some at the monthly-buy-point. Do not to buy at the upper wall of the monthly channel. Do not chase when it becomes skyrocketing.
If you are interested in how and when to buy at the monthly buy point, please see “What to buy now? How about Coca-Cola?”
If you think it is not worth the effort to buy VISA now, you can use Earning Channel to find stocks with monthly or weekly channels. There are plenty of them.
Hope this discussion is useful to you.
Please try Earning Channel for free. We believe it can sharpen your skills and provide you with better direction and protection.
The difference between band-trading and building a position for buy-and-hold is that for band-trading you do not keep the position after you sell.
For buy-and-hold, you buy some at channel-buy-point, sell a few at channel sell point, buy more at the next channel-buy-point, and so on, until you reach the position you are comfortable with.
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