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While I am no expert, I’ve probably been keeping my eye on VISA and MasterCard (hereafter referred to as MA) longer than anyone else here so far. My father loved to teach finance and economics, and he often talked that a transition to a “cashless society” (i.e. plastic only) was inevitable. He would often cite how cheques and banking developed during the middle ages as a way to protect one’s assets against the very real threat of armed robbery for one’s gold, and to argue that plastic was the future’s alternative to cash. At a young age, he encouraged me to investigate if there was any way to invest in this trend; my very first stock research, albeit a little early. It turned out that visa and MA were owned entirely of their “member banks”. The banks issued the credit and took the risk. Visa and MA would simply process the transaction for a fee. I vowed to be sure to keep an eye open for the opportunity to invest.

I bring this all up, because when I first got into MA less than a year ago, Visa was discussing an IPO as a distant prospect, 2-3 years away at least. Now, suddenly they are planning a IPO in a few months to raise $10B. I believe that this indicates that the “member banks” aka owners of VISA are looking to fix their balance sheets after the sub prime melt down and subsequent liquidity problems. No one even burped when Visa said it wished to raise almost 4.5 times more than MA, and 2-3 years earlier than planned. This seems excessive given that they’re only about 2.5 times bigger than MA.

So I think it is very likely that Visa might try to raise even more capital than the $10B as the sub prime and credit crisis do more damage. Without knowing the total size of the offering its impossible to value its investment potential. That said, MA has been an exceptional investment.

For the record, MA IPOed 5/24/06 at $39. It hit the open market the next day around $45. A few days ago it flirted with $230 and is still >215. That’s better than a 4 fold increase in a little more than a year. Proving yet another piece of advice my Dad gave me. Like all the best advice; it seems so obvious as to seem foolish. His advice: “Bet with the winners.” Often easier said than done. Yet my experience with MA leads me to conclude that the current owners of both Visa and MA, namely the “member banks” were able to manipulate the share price to make some real profits. I believe that they will also do so with their next offering, Visa.

I’m definitely in for the ride. Fool on!

Finally, and by memory so these numbers are rough; Visa has about 55% market share, MA about 25%. Amex and Discover had 13% and 7% but which had which I don’t recall.

Bill
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