Ask yourself these few questions: in the future do you think you will use more or less cash? Do you use less cash today than you used ten years ago, or even five years ago? Do you think most people use less cash today than they did five years ago? I bet the answers to all of those questions is ‘less cash’ and that is precisely the reason I’m invested in Visa (V).
Last Thursday after market close Visa reported their quarterly earnings and they beat expectations. On Friday the stock closed at $99.60, up $1.49 or 1.52%. I got into Visa back in September 2016 at $82.39. Over this time period Visa has returned approx. 20% while the S&P only 14.5%. I’m also earning a 0.080% yield.
You may be thinking that a 20% return and beating the S&P make Visa a great stock to own, which is true to some extent, however Visa is not the best stock in its category. Over the same time period both MasterCard (MA) and American Express (AXP) have returned almost 30%. To make matters worse Paypal (PYPL), a stock I purchased around the same time but later sold, is up over 51%! OK, and now to go into ‘full regret mode,’ Square (SQ), another stock I considered but elected for Paypal instead, is up over 136%! Ouch!!!
It appears I am a truly horrible stock picker, at least when it came to this particular stock. The only way to put a silver lining on this is be happy that at least the money was invested and not just in cash. A 20% return beats the 0.05% I would have earned in a bank account and even the 14.5% captured by the S&P.
What Could I Have Done Differently?
Prior to me relaunching this blog I didn’t pay very close attention to all of my investments. Hell, even with relaunching this blog I still haven’t paid close attention to my Visa position. If I had been consistently tracking Visa’s performance vs it’s competitors I would have seen much earlier that I was invested in an underperforming stock. Your money needs eyes on it at all times and I made a cardinal mistake of not paying close attention.
Also, Visa is the behemoth in this industry, it’s like the Walmart or Coke of the credit industry. There was only slim chance that it (or even MasterCard or American Express) was going to double or triple. I did the right thing originally, I invested in both Visa and Paypal, with Visa being my core investment in the sector and PayPal serving as my riskier bet in hopes it would significantly appreciate.
Unfortunately I lost confidence in my thesis and didn’t give PayPal enough time to perform. I sold PayPal at a profit, but by doing so early in its rise I made the classic novice investor mistake of not letting your winners ride. Most investors stay in loosing trades too long and in winning trades not long enough.
I don’t have much interest remaining in underperforming stocks. Also Visa’s chart is showing some signs of a possible reversal via a ‘long-legged doji:’
A doji like this appearing after such a strong price movement upwards could be ominous. A doji at this point in the chart represents indecision. You can see the bears attempted to pull the price down to Thursday’s open and the bulls did their best to make a new high but in the end neither were successful. Even with more than double the normal trading volume and a positive earnings report the stock still closed at the same price it opened at ($99.60).
Visa bulls and bears are at an equilibrium, providing a high level of uncertainty to the stock. This doji looks to be a clear early signal to get out. If I wanted to be in the stock long term I would most likely set a stop-loss around $96, that appears to be its most recent resistance level. However since there might be better options out there in this space I think I’ll set a stop-loss tomorrow at $99, just below Friday’s low.
If the doji is a false positive and the stock rises tomorrow no harm no foul. I can stay in my Visa position until I’m sure of a better investment option. If I get stopped out then that’s fine too, I can just take my winnings and walk away. This is a great chance for me to test my reading of candlesticks charts in real time with real money.