Today I purchased:
25 shares of Visa (V) at $86.92/share for a total purchase price of $2,173.12.
50 shares of SPDR KBW Bank (ETF) (KBE) at $45.23/ share for a total purchase price of $2,261.75.
Both of these positions are part of my continued build out of financial sector exposure in a conservative way that limits the unique risk that financial companies are exposed to. And more broadly part of a strategy to diversify my sector exposure around my core positions in 2017.
The Visa purchase essentially doubles the value of my existing position. To me I justify this purchase at this time as a case of “buying a great company at a fair price.” Shares are currently fully valued, if not a little much so. Financial technology (Fintech) is one of the best structured industries, both in terms of future growth and the competitive advantage that the network effect of a large payment system confers upon a brand like Visa. Moreover, future trends look to be in Visa’s favor, as the move towards a “cashless society” plays directly into their business model. Additionally, it is important to note that Visa gets paid everytime someone uses their credit card, and as such doesn’t hold any credit risk unlike AMEX or Discover – meaning they get paid based on volume, not whether people can pay back their debts. Additionally, they sport impressive financials with lofty operating margins and significant cash flow.
KBE on the other hand complements my purchase of XLF – whereas the latter focuses on big names like Berkshire Hathaway and JP Morgan – the former is a way to gain exposure to money centers based in the US, like SVB Financial Group, Key Corp, and Sun Trust banks. The key benefit of KBE in relation to XLF is that it is less exposed to global systemic uncertainty, which is a way to shield against global contagion risks.
Visa currently pays 0.76% and KBE pays 1.72%. Together, these purchases will add $55.41 to my forward income.
I’ve updated my portfolio accordingly.
Thanks for reading.