The financial media covers Warren Buffett's every move in nearly mind-numbing detail. Countless reporters and writers scrutinize every stock buy and sell that he and his two Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) portfolio managers make. Investors follow all this news looking for insight and an edge. Some, conversely, look for signs that the Oracle of Omaha is losing his touch.
And although following 13-F reports -- the quarterly filings that disclose the stock holdings of giant investors such as Berkshire -- isn't really a good way to try to copy another investor, it can indeed give us some insight. In the case of the Berkshire portfolio, which is relatively concentrated, with most stocks held for years or even decades, we can look for signs of potential long-term trends that are worth exploring.
Let's take a closer look at one company that, although it remains a relatively small part of the Berkshire portfolio, Buffett (or one of his lieutenants) has been buying a lot of lately.
The little one that's easy to miss
Two of Berkshire's biggest holdings, Wells Fargo & Co. (NYSE:WFC) and American Express Company (NYSE:AXP), account for more than one-third of Berkshire's total stock holdings. Between the billions Berkshire has invested in these companies and the billions more it has invested in other banks, financial-services companies account for nearly half the company's stock portfolio, according to the most recent 13-F.
All those massive investments Berkshire has made in other companies make it easy to miss the $485 million it holds in MasterCard Inc. (NYSE:MA) shares. However, to disregard MasterCard as an investment simply because of the size of Buffett's stake would be a bad idea. For starters, MasterCard -- along with American Express and another Berkshire holding, Visa Inc. (NYSE:V) -- is one of the world's dominant payment network operators, with tens of millions of businesses serving billions of customers daily. Yet even at that scale, things could just be getting started for these card companies.
In the West, plastic is the dominant means of conducting transactions, but globally, that's not the case. Cash is still king in many places, but that's changing as technology becomes more pervasive. Furthermore, the global middle class is expected to grow from around 2 billion in 2012 to almost 5 billion by 2030. And it's this major demographic shift, combined with generations of people who are becoming comfortable with technology, that will drive the massive opportunity for companies such as MasterCard.
Won't mobile payments kill the credit card?
Many people fear that mobile payments will be the death of plastic, but nothing could be further from the truth. If anything, mobile payments will be a major driving force behind the expansion of credit and debit card transactions for years to come. The reason is simple: The payment processing networks at MasterCard and its competitors are the reason mobile payments work at all.
The "digital wallet," as many call the mobile-payments platform, is simply a convenient, secure way to eliminate the need to carry physical cards. Apple's Apple Pay, for example, simply operates as a secure proxy for the physical card, while the transaction approval and funding take place over its network of partners, including MasterCard.
Many parts of the developing world that are primarily cash-based economies have been using a form of a digital wallet for years, sending funds by mobile phone from one user's account to another. Paying with a smartphone will feel more natural to many than carrying a strip of plastic with a magnetic strip ever would. MasterCard's payment-processing network will be there to make it work.
Final thoughts: Constancy in a changing world
MasterCard shares a spot in the Berkshire portfolio with Visa and AmEx, and for good reason, whether it was Buffett or (more likely) portfolio manager Todd Combs who picked the stock. There are massive tailwinds for this business that could keep blowing for decades to come.
Yes, other payment processing systems, including PayPal, will play some role in the future of the digital wallet, but these three companies have a huge head start. They're establishing strong positions in the move to mobile payments, and they already operate the payment networks that make it all work.
Add another 2.9 billion middle-class spenders to the picture over the next 25 years, and MasterCard is likely to be one of the biggest beneficiaries. Buffett once said, "Someone is sitting in the shade today because someone planted a tree a long time ago." I think you could just as easily say that someone will be using a MasterCard in 20 years because MasterCard built a payments network a long time ago. They won't be swiping a piece of plastic, but MasterCard will still be the beneficiary.