Tickers in this Article: AXP, V, MA, DSF
It seems like since 2008, the market has been able to make one guarantee: It will drive you crazy. Absent a nice 18-month bull market that started in 2009, the past four years have made many want to pull their hair out.
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Timeless Truisms
Investors should not forget that the market is an aggregate representation of millions of buyers and sellers, affectionately known as the herd. Following the herd is often a costly mistake in investing. For decades, whether its recession or depression, successful investing can be defined by several truisms that have stood the test of time. The most important and logical truism is "buy what you know." And the truth is, no one is smart enough to really know everything about all industries. So investors should stick to where they are most comfortable. For example, Warren Buffett decided insurance was going to be his bread and butter. (For related reading, see What Is Warren Buffett's Investing Style?)
Second, avoid complicated businesses. The tougher it is for you to understand what a company does and how it makes its money, the tougher it will be for you to make money investing in it. Third, pay attention to price. For most investors who really can't come up with an intrinsic value, if you buy when everyone loves the stock, odds are you are paying a fair or overvalued price.
Winning Candidates
Two fantastic businesses today are MasterCard (NYSE:MA) and Visa (NYSE:V). Just about everyone has a card with one of these names inside their wallet. Every time you swipe your credit card, Mastercard or Visa earn a fee. This fee is earned at the moment of purchase. Regardless of whether or not the bill is paid, MA and V have gotten paid. Unlike Discover (NYSE:DFS) or American Express (NYSE:AXP) who are on the hook for their customer's credit card bills, MA and V are basically payment processors. So whether people are buying jewelry or simply using a debit card to buy the basics like food and medicine, MA and V make money. After reporting a great quarter, MA shares trade for $360 or or about 22 times earnings, not "cheap" in the value sense of the word.
But growth creates value and the continuing transition to more debit card use will increase the frequency of transaction. Visa shares trade a multiple of about 17 times earnings. MA is expected to earn nearly $18 a share in 2011 and $21 in 2012, respectively. Visa should earn around $5 a share in 2011 and nearly $6 in 2012, respectively. That growth will likely not be hindered by a weak economy. Any sell off in shares may offer an excellent opportunity to own these two exceptional businesses. (For related reading, see Top 5 Ways To Make Your Credit Card Work For You.)
The Bottom Line
Good economy or bad, people are doing more transactions with plastic and less with checks and currency. Frugal consumers use credit and debit cards more often to pay bills online to avoid postage costs. It's safer to hold a card than cash. MasterCard and Visa are a pure duopoly with simple business models, which makes them companies that can be safely owned in any market.
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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

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