In this segment from Market Foolery, host Chris Hill and Million Dollar Portfolio's Jason Moser discuss the latest news from Visa (V 0.48%) and American Express (AXP 1.31%), and the unabashed desire they and their peers have to not just increase market share, but to seriously displace folding money. Last week's discussion has finally moved Jason to put his money where the trend is, at least as he sees it. But you might not predict which stocks he's picking.
A full transcript follows the video.
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This video was recorded on July 24, 2017.
Chris Hill: Last thing before we wrap up today, and this builds off the most recent episode of Motley Fool Money, where you and David Kretzmann and Jeff Fischer and I were talking at one point about the latest results from Visa and American Express. I think what Jeff Fischer had to say about not just Visa and American Express but the trend around cash, and I've said this before, I do like the audacity of Visa coming out and literally saying, for the record, "Yes, we are declaring war on cash. We are in competition with cash. Yes, on some level, we're competing with American Express and MasterCard, but we're competing with cash, too." And what Jeff had to say, I think, resonated with each of us over the weekend, because you had tweeted something out and I immediately jumped on. I think you tweeted, "You know, I've been thinking about what Jeff Fischer had to say."
Jason Moser: I think that you and I probably kick this around every earnings season. We talk about American Express earnings, Visa, MasterCard, PayPal, all of these payments businesses, and we're like, "Oh, weren't we saying last quarter that we wanted to buy some of these?" And then another quarter goes by and we didn't. I had a little bit of driving time this weekend, and I really started thinking about this, and it struck me that I have some capital to deploy, and for me, this is such an attractive space for so many reasons. Maybe it was the words "war on cash" that just crystallized everything for me right then and there. To me, this is one of the biggest long-term trends out there. Having looked overseas in a number of different places and understanding how many infrastructures out there are still lacking on the electronic payments side tells me all I need to know. There's a great opportunity out there for all of these businesses to really take market share in some meaningful way, and I don't see any reason to place your bets on one winner. So I'm not.
Hill: And there won't be one winner.
Moser: Right, there will be many. I think you have to prioritize the list of names that you would like to have exposure to. I keep on getting questions about American Express and I'm torn there, because as a customer of American Express, I really love it. The card is great; the service they provide is wonderful. The investment side of it, they're faced with more challenges. Visa and MasterCard are offering similar products; they have bigger networks. You can go to places where they just don't want to accept American Express because it costs them more to do so. With that said, I think American Express is a very powerful brand and a very valuable network. They can come up with new offerings and products.
To me, I think I whittled it down to a basket that I'm going to purchase in equal amounts. Are you ready? Because I'm going to tell you what I'm going to do here. So as soon as our trading restrictions allow, I'm going to actually go do this. I'm going to break it out into 25% in each of four holdings. I'm going to buy Visa, I'm going to buy MasterCard, I'm going to buy PayPal, and I'm going to buy Square (SQ 2.42%). Square? Yes, Square.
Hill: You're buying Square? [laughs]
Moser: Yes, I am.
Hill: When you look at the 25% that you're allocating toward Square, do you look at that the same way I look at cash in my hand when I walk into a casino? Like, "Oh, I'm not leaving with this cash; this cash will stay here."
Moser: The cash into the casino example, there's a 100% chance that you're not walking out with it. With Square, I think there's a chance. It strikes me, a lot of these places I go, whether it's the frozen-yogurt store or the music store down the road where we rent my daughter's viola, all of these places are starting to take Square. Square is proving itself to be very resilient, and I think a very valuable offering for a lot of small and medium-sized businesses. So, I think there's something there. I think the business is showing signs of gaining traction with a lot of folks.
One of the things, I think, with a lot of businesses, it's very easy in the short run to be bearish or critical of companies that get out there and do whatever it takes to win over their customers, at any cost. They're going to sacrifice, in the short run, to build up that loyal customer base. It's easy to criticize them in the near term. But in the long run, the businesses that really tend to do well are the ones that find out what their customers want and then just keep giving it to them. And over time, you develop that loyalty. If you have a powerful network, and I think payments is a good sort of example of a network effect type of business, you can do very well. When you consider all of the opportunities there in that basket, to me, you have two very lower-risk investment ideas in Visa and MasterCard. PayPal, a little bit on the median side. And then Square represents the very high-risk, high-reward style. I think when you put those all together, it's an easy way to manage risk, get some exposure to a lot of neat ideas in the space.
So for me, I made the decision. That's what I'm going to do. I'm not telling anyone else out there to do that. I'm just telling you what I'm going to do. But I just thought that was a neat little byproduct of our discussion this weekend.
Hill: Do you still own shares of Twitter?
Moser: I do.
Hill: See, this is going to be great, because you're going to own two companies that Jack Dorsey is the CEO of, and then I'll get to ask you which one you want him to leave.
Moser: I'm all in on Dorsey, I guess. And we can make fun of him, but I tell you, there's a lot to him. I think he's a good leader. And more so, I think he's a good person. I think, generally speaking, when you have good people who are hell-bent on giving people what they want, building a business around giving people what they want, I think Dorsey is one of those guys, in the long run, they tend to do pretty well. And I'm a patient man, as Lex Luthor once said.