Investors should always aim to have a diversified portfolio. At The Motley Fool, we typically recommend that someone hold at least 25 stocks. However, regardless of how many stocks an investor holds, there are typically ones that stick out as their "favorites" compared to others.
For me, one of my personal favorite stocks is Visa (V +0.91%). It's a stock that I've held for a while and plan on holding forever.
Image source: Visa.
The gift that keeps on giving
One reason I will never sell my Visa stock is that it benefits significantly from the network effect. Visa is the most widely held card in the world (4.8 billion payment credentials [accounts] globally), so, as a merchant, you're incentivized to accept Visa, or you risk the chance of missing out on sales when someone tries to pay with a Visa.
Visa is also the most widely accepted card in the world (over 150 million merchants), so if you're looking for a card, you're incentivized to go with Visa because you know that it's very likely a store will accept it if they accept cards.
It's fairly rare for a merchant to accept a Mastercard, Discover, or American Express card and not accept Visa. However, it's not uncommon for a merchant -- especially in many areas outside the U.S. -- to accept Visa but not the other options.
NYSE: V
Key Data Points
Margins that few companies can compete with
This network effect allows Visa to organically expand its reach without having to invest too much into customer acquisition or building out new infrastructure. Once Visa's payment network and infrastructure are in place, it reaps the benefits of increased transactions without needing to spend money on each additional transaction, unlike companies that deal with physical products or heavy logistics costs.
The network effect and its asset-light business model are why Visa is able to operate with margins that few companies, regardless of industry, can compete with.
V Profit Margin (Quarterly) data by YCharts
When I'm looking for a company to hold forever, it's one with a durable competitive advantage, strong cash flow, and a proven track record. Visa checks off all three of these boxes. And with digital payments seemingly on the early end of expansion, there are plenty of growth opportunities ahead for Visa.
Much of the world still operates largely on a cash economy. As digital payments and cash technology begin to spread, no company is better positioned to take advantage than Visa. So you can see there's actually more than one reason I plan to hold it forever.
