In 2008, someone who found themselves purchasing stock in Visa during its IPO year could have peered into the annual report and learned that each share represented $2.25 in profit. Not bad. Fast forward six years. Now, Visa is making $2.20 in profit per share every ninety days. Its quarterly profit now equals its annual profit from just six years ago. This is why it’s important to be broader than Benjamin Graham when it comes to stock selection—every now and then, you have to look to expected future cash flows to make an investment that can change your life. It’s a hint straight out of Charlie Munger’s playbook: you find a company that thoroughly dominates the United States, and then you hold on for the ride while it replicates its business model across the other 200+ countries in the world. It worked with Coca-Cola. It worked with Colgate-Palmolive. It worked with Nike. Visa is the one doing that *now.* I think every investor owes it to himself to study Visa seriously and consider it as a super long-term investment. It’s got the brand equity. It advertised all over the World Cup. When you go to any place, they have a picture of Visa to let the customer know it is accepted, thus quietly building its brand. It’s got an oligopoly on the market with Discover, Mastercard, and American Express. You can see the 30% growth in Asia Pacific, 15-20% in Latin America, and complete absence of debt on its balance sheet. The growth has been around 18% annually, and every year, Visa reports significantly more profit than the last. It’s one of the few American large-caps that still holds the potential to compound at 13-17% per year for a long time, despite its size. I’ve never studied anything quite like it.
Originally posted 2014-07-13 00:30:39.