Visa (V +0.17%) is leading the Dow Jones Industrial Average (^DJI 0.16%) down after the company announced the retirement of one of its key executives. As of 1:20 p.m. EDT the Dow was down 30 points to 16,716. The S&P 500 (^GSPC +0.80%) was down two points to 1,923.
Visa is down 1.1%, pulling the Dow Jones Industrial Average down with it, after the company announced this morning that its chief financial officer, Byron Pollitt, Jr., plans to retire within the next 12 months. Pollitt was been CFO since 2007 and was part of the management team that took Visa public. It's unsurprising that Visa is down, as the market only ever likes management change if the current team is despised. The only thing worse than change is sudden change, so it's a positive that Visa made this announcement now, rather than at the last minute. In Bryan Pollitt, Visa is losing some significant experience: Pollitt was previously the CFO of Gap and before that CFO of Walt Disney Parks and Resorts.
Visa and the Dow Jones Industrial Average
Under Pollitt, Visa has risen from its IPO price of $44 to its current price of $211.24. Because the Dow Jones is a price-weighted index, Visa is now the largest component of the Dow Jones Industrial Average despite being nowhere near the largest company on the Dow by market capitalization.
Source: IndexArb.com.
Although the Dow Jones is far more popular than the S&P 500 among the general public, the price weighting of the Dow Jones is one of the reasons I am not a fan of the index and suggest that people familiarize themselves with the S&P 500 instead. Another reason: The Dow Jones committee has made some questionable and poorly timed removals and additions. If the early Dow Jones committee had been less active in switching components and instead acted like long-term investors, holding their picks for the long run, the Dow Jones Industrial Average would now be above 39,000!
Bottom line
Visa has built up an unbeatable moat in its market that enables the company to post huge profits every year. Investors who focused on this moat, ignored the ups and downs of Visa's stock price, and held for the long run have profited handsomely.
Investors can learn something from the story of Visa and the Dow Jones Industrial Average. The best investors invest in great companies at good prices, continue to educate ourselves, and hold on to great companies over the long term. The market will fluctuate, sometimes massively, but great companies will win out over the long run.
