Rare is the investment newsletter that hasn’t opined about the Visa IPO. In the wake of the Bear Stearns fiasco, the frantic bucket brigade by Hank Paulson and Ben Bernanke, frantic inflation, $100 oil, $1,000 gold, and a zillion other terrifying things, the thirst for a successful investment is almost debilitating.
Which means that anyone who promises you that he can help you profit by getting on the right side of the largest IPO in American history — which Visa stands every chance of being — is going to get your attention.
So … have I got your attention? Because I promise …
Just kidding. All I can promise is to share my opinion. Like many of the rest of you, I find the Visa IPO somewhat alluring — we are not blind, we have all seen the performance of Mastercard over the past couple years, and we know that Visa has about twice the market share of Mastercard. This is a rare thing indeed, a global duopoly, and the smaller participant in the duopoly has been public long enough to make everyone comfortable with their business model and get the “big brother” a decent price as they sell to the public.
So the banks and other owners of Visa aren’t stupid. They’ve seen that Mastercard was dramatically mispriced when it went public, and they know that now that MA is one of the few strong performers in the consumer debt space Visa has an excellent chance of a great performance on the public markets straight out of the blocks. And it won’t be priced at a deep discount as Mastercard was — a discount maybe, depending on how you argue this point, but not a deep one.
But you all know this — what on earth can the newsletter advisers sell us to make our understanding of Visa greater, or improve our chance of profiting from the IPO?
Well, first of all, none of them can get you shares. If you’re crying at your broker’s doorstep trying to get shares in the initial IPO allocation, don’t give up your place in line there just to throw some money at George Yared (for example — he’s just one of many who have an “angle” on the IPO that they think they can sell you). Your broker is the only one who can get you an IPO allocation, and probably only if he really likes you, since the allocations are reportedly pretty tight. Most people are unlikely to get as many shares as they want, and the small fish are rarely the winners in that scenario.
So sticking with George Yared, what is he offering?
Well, we can take a few clues — he compares Visa to Google (based on market dominance, not, obviously, on business specifics), and notes that “My meager 40 shares of Google, snatched at the IPO for $105, are worth five times what I paid for them today.”
So, if he bought them at $105, we know he didn’t get them in an initial allocation. The IPO was priced at $85 through their auction process, so that’s what the initial allocations cost. You could have done better than $105 at several times during the day that GOOG went public, it closed that day at just about $100. Remember how many people were wildly pessimistic about that one? The initial price estimate was $108-135, and they cut it dramatically right before the auction because people didn’t believe Google was worth that huge market cap (at the IPO, the market cap of the entire company was set at about $26 billion, which is of course a small fraction of the capitalization of $135 billion today).
What else does he say to entice you to join his GameChangers service?
Well, to put it bluntly, he claims that his age and experience will enable him to tell you how to buy or trade the IPO:
“Buying shares at (or around) an IPO is an art. What you say to your broker, when you buy on the open market, how to gauge if you should add to your position, whether or not you should adapt your strategy on the morning of the IPO, the signs you should watch for in the first 3 or 4 weeks…all this effects the profit you make…. But you don’t have to learn all this on your own. I am offering my experience (and all these lines on my face!) every step of the way.”
“We’ll follow the initial pricing, the valuation, the allocation issues, but we’ll also dig into Visa’s GameChangers strategy. This is where it gets really exciting, because how Visa plans to use its new $5 or $6 billion in cash is truly jaw dropping!”
That appears to me to be a bit of a stretch. It seems fairly clear that they’re using the proceeds for a warchest for lawsuits (much like Mastercard, being a duopoly that, it has been argued, colludes on pricing, brings on some antitrust and other legal attention), and to expand their chip and wireless payment platforms (that is, the “touchless” payment cards and mobile phone payment technology), in addition, I’m sure, to continuing to expand the brand globally. More or less the same stuff MA is doing.
Whether you believe this adviser, or any other, who tries to tell you that his “experience” will chart a success on this one trade is up to you — but I’d suggest that since this IPO is quite unique, they’ll just be guessing like you will be. Long term, I’m quite sure Visa’s business will be successful, but I don’t know what kind of valuation it will get in the market in two or three years and I would certainly never promise that I could tell you how to trade in and out on the IPO day or in the weeks to come.
The advisers who make their money by convincing you that they can help you trade around IPOs and breakout stocks are probably all having trouble picking up new subscribers at the moment, so it’s easy to understand why a single massive IPO, even if it stands alone as a single event and probably isn’t much of an indicator for the overall IPO climate, can get their juices flowing and their emails flying. I don’t know if any of them will have better advice than others, but I think that it would behoove us to be careful: This is the largest IPO in US history, possibly the largest in the world’s history (depending on how it prices today), and it’s opening during a market panic that is caused in part by the banks that own most of these Visa shares. That’s an odd situation, and I think if anyone says they know how it’s going to work, they’re just as likely to be right as you are.
I’m interested in Visa, too, but I will note one thing: I have never before seen an IPO where the fans are so dominant or so unanimous in their predictions. Criticism of the company, the price range, or the IPO has been nearly nonexistent. It’s opening at a fairly high PE ratio, during a possible recession, but it’s also a market leader in a tightly closed global market and it’s expanding into new markets and new payment types all the time. What makes me more nervous than anything else is that every single adviser I’ve heard or read says good things about the company and says they want to buy it (though some are conservative and hope to see the shares dip in the coming weeks first).
If EVERYONE says they want to buy it, we should be at least a little bit nervous — especially because many of these advisers, talking heads, and investing pundits might in part be stretching out to find anything positive to recommend in this crazy environment — the perceived safety, size, market dominance and growth of V is hard to resist, and if “everyone loves it” it’s easy for all pundits to get behind it — they won’t be going out on a limb, and if they’re wrong so is everyone else, so no one will care.
I haven’t decided yet whether I’ll try to buy shares — since I’m writing about it here today it will be at least Friday before I place an order, but I will be watching Visa trade, and Mastercard to see if there’s any impact on their shares or valuation. Following is a rogues gallery of the other folks who have opined on this one … if you can find a real negative comment about the IPO (stronger than, “be cautious about the price and maybe buy a little later), I’d like to see it.
(Ian and Ann, I’m sure, will continue pushing their recommendations of the IPOSX mutual fund — a high cost way to get exposure to most IPOs. That seems to be extra crazy to me as a back door into Visa. At a time when there’s only one IPO that anyone’s interested in, and most IPOs remain unprofitable or marginally profitable, and often debt-dependent, why bet that the whole IPO pipeline will revive and bring back the crazy IPO bubble days?)
So … that ought to be enough to get all of us confused, in most cases ragingly bullish, and at least fairly well informed about the specifics of the offering.
Back to more sleuthing and teaser ads next, but in the meantime feel free to opine below about Visa — from the email I’m seeing, nearly all of you are at least interested and many of you want to know how to get shares on the initial allocation (call your broker, but don’t hold your breath) … who’s feeling nervous or cautious? Anyone out there have a plan to buy shares next month, or a chart that tells them the perfect time to buy will be a 12:15 on Thursday?
I confess to being an addict...I check my net worth, my spending and saving progress, and my portfolio (combined from several different brokerage accounts) using Personal Capital at least once a week, sometimes every day ... after all, it's free and brilliantly organized.
Personal Capital has great tools for tracking spending (they can cut your spending by 15%), but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.