We recently published a list of Warren Buffett Disciple Guy Spier’s 10 High Conviction Stock Picks. In this article, we are going to take a look at where Mastercard Incorporated (NYSE:MA) stands against Guy Spier’s other high conviction stock picks.
Guy Spier’s Aquamarine Capital Management is a Zurich, Switzerland-based investment manager that employs the same long-term oriented, value investment approach as Warren Buffett, who Mr. Spier proudly considers himself a disciple of.
Spier earned a degree in philosophy, politics, and economics from Oxford University in 1988 and followed that up with an MBA from Harvard Business School. Foollowing that, he spent several years working as a researcher and investor on Wall Street, including stints at Braxton Associates and Buffett’s Berkshire Hathaway, the latter of which inspired him to launch his own value investing fund in 1997.
Spier is noteworthy in the investment world for his $650,100 lunch (alongside Mohnish Pabrai) with Warren Buffett in 2007, which was purchased through a charity auction. Spier took several important lessons from that meeting, including the necessity of saying no, and ultimately wrote a book about his takeaways from that lunch and his broader investment journey entitled ‘The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment’.
Mr. Spier makes all of his firm’s investment decisions himself and is an even more ardent value investor than Buffett, holding on to many of his positions for several years without touching them. In the second quarter the fund added two small new positions to its 13F portfolio while otherwise leaving the rest of it untouched. Its 13F portfolio held $263 million worth of assets on June 30, 74% of which were invested in finance stocks.
Aquamarine’s total return stands at 874% since inception through the end of 2023, or 9% annually, outperforming the S&P 500’s 717% returns during that period. Spier’s fund hasn’t been as successful in recent years however. It returned 18.7% last year, which underperformed the market, the sixth-straight year it’s failed to top the market. 2000, 2002, and 2006 were three of the fund’s strongest years, as it beat the market by more than 20%.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). That’s why you should pay close attention to this important indicator.
A woman using a payment terminal at the checkout of a store showing payment products and solutions.
Mastercard Incorporated (NYSE:MA)
Value of Aquamarine Capital Management’s 13F Position (6/30/2024): $29 million
Number of Hedge Fund Shareholders (3/31/2024): 149
Guy Spier follows closely in Warren Buffett’s footsteps when it comes to his conviction in finance stocks,which take up the top four spots in his 13F portfolio. Among them are three of Buffett’s own personal favorites, BAC, AXP and Mastercard Incorporated (NYSE:MA).
Spier has held the same 65,750-share stake in MA dating back to the fourth quarter of 2015, during which time it’s more than quadrupled in value. Buffett owned 3.99 million shares of Mastercard at the end of Q1, though that significant stake still only ranked as the 17th largest position in his $332 billion 13F portfolio.
Mastercard Incorporated (NYSE:MA) and other payment providers have enjoyed exceptional growth in recent years and that projects to continue through the rest of the decade, with the global payments market expected to nearly double in size to $5 trillion. Given its history of impressive return on invested capital over the last five years (47% on average, nearly twice as high as rival Visa Inc. (NYSE:V)’s), a lot of that projected future growth will filter down to the company’s bottom line, and from there, into investors’ pockets. Mastercard has bought back nearly a fifth of its shares over the past decade, while simultaneously raising its dividend every year throughout that period.
Manole Capital Management discussed a long-running regulatory concern for Mastercard Incorporated (NYSE:MA) and other payment providers in its Q2 2024 investor letter:
“We have invested in Mastercard Incorporated (NYSE:MA) and Visa since their IPO’s, in 2006 and 2008 respectively. When both payment companies initially listed, they identified potential legal liabilities stemming from merchant interchange lawsuits. During its IPO roadshow, Visa took a somewhat differentiated tact, by shielding new public shareholders from this liability and putting the risk onto the shoulders of its banking partners, card issuers, and earliest owners.
Over the last few decades, there have been numerous settlements, as well as legislation impacting payment industry. The Durbin Amendment, inside of Dodd-Frank legislation in 2010, altered debit fees. Also, a court ordered interchange settlement was approved over 15 years ago, but it was not fully embraced by the merchant community. Last year, Senator Durbin announced his intention to alter the payment environment again, with his CCCA (Credit Card Competition Act). This created a headwind for the networks, as it appeared that legislation from DC was on the horizon. We wrote numerous articles on this subject, highlighting our view that government interference in setting pricing isn’t ideal. All of our research notes can be read at www.manolecapital.com, under the “Research” tab. If you don’t believe us, since we clearly have a vested interest, there are additional thoughts about how the CCCA would negatively impact consumers…” (Click here to read the full text)
Overall, MA ranks 4th on our list of Guy Spier’s high conviction stock picks. While we acknowledge the potential of MA, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.