The Fundamental Rules to Wealth
Success in the stock market is a labyrinth, yet one route, in particular, stands out as the key to prosperity over the ages: invest in high-quality businesses, procure them at a fairer cost, and clutch these esteemed positions as long as their greatness endures.
Today, the spotlight is on Mastercard Incorporated (NYSE:MA), a paragon of an exceptional business, currently trading at a favorable valuation.
A Glimpse into the Origins
Mastercard is a juggernaut in global payment and technology, with roots extending back to the mid-20th century. In a bold gambit, a consortium of banks birthed the Interbank Card Association (ICA) in 1966 to fabricate a rival to BankAmericard (now Visa). Their ambition was to craft a universal credit card embraced by multiple banks.
In 1969, the ICA unfurled “Master Charge: The Interbank Card” to spar with BankAmericard, eventually rechristened as Mastercard in 1979 to echo its global ambit. Mastercard rapidly sowed its eminence globally, forging alliances with myriad banks and financial institutions, knitting a truly worldwide network.
Mastercard’s earnings stem largely from transaction-related fees and services it dispenses, augmented by:
Transaction Fees on its network, Cross-Border Fees, Assessment Fees on member banks, Licensing Fees for the use of its logo and network, Data and Analytics Services, Innovation and Technology Services, Partnerships and Collaborations, and Interest on Deposits. Mastercard operates as a payment network, without directly lending money to cardholders. It luxuriates in the benefit of debt but avoids the service obligation.
Staggeringly, much of the world still shuns credit cards, with the brunt of the developing world bereft of traditional banking services or credit facilities. Cash transactions reign supreme, underscoring the untapped potential Mastercard could plumb in the future.
The scorching evolution of contacts and digital payment technologies positions Mastercard at the vanguard of penetrating emerging markets, laying the groundwork to provide secure, slick solutions for regions shackled to cash transactions for eons.
As the global expanse of e-commerce mushrooms, Mastercard ascends at the portal of opportunities to engineer seamless online transactions. The spurt in online commerce proffers a vast theater for Mastercard to play a pivotal role in enhancing payment experiences, guaranteeing both security and convenience for global consumers.
Mastercard’s foray into blockchain technology and cryptocurrencies kindles scintillating prospects. Venturing into these bold frontiers places the company at the cutting edge of financial technology, ready to adapt to the evolving needs of the digital epoch.
Ergo, Mastercard’s strategic alignment, blended with its ardor for embracing technological advances, not only acknowledges the current payment panorama but also underscores its readiness to sculpt and conquer future markets, delineating a dynamic course for growth and global financial inclusion.
Sporting a swaggering market capitalization of $395 billion, Mastercard sits regally as the 17th largest company within the S&P 500 index. Despite its fledgling years as a publicly traded entity, Mastercard has etched an indelible track record of triumph.
A Storied History of Triumph
On May 25, 2006, the unveiling of Mastercard on the stock exchanges at $39 per share was nothing short of a gala affair. The stock swiftly outpaced the broader market, accentuating gains exceeding 100% during 2006 and 2007. It weathered the Financial Crisis with a drop of over 33% in 2008, yet boasts an extraordinary compound annual growth rate (CAGR) of 30.17%, strikingly outperforming the S&P 500’s 9.85%. This equates to an investment in Mastercard burgeoning to a value twenty times greater than that achieved with the S&P.
Inspecting Mastercard’s monthly returns against those of the S&P, the stock has exhibited superior performance 60.66% of the time, as assessed by calendar month returns. Investors exercising patience and clutching their shares for prolonged periods witnessed even rosier outcomes. Over a rolling 12-month period, Mastercard outdid the index 75.5% of the time, surging to 82.95% over a rolling 36-month vista. Notably, the margin of outperformance has been impeccable at a stirring 100% over a rolling 60-month stretch.
While a past replete with remarkable returns is certainly laudable, the seminal question looms: Is Mastercard poised to continue its exceptional legacy? Let’s unravel this enigma.
