Contrarian Move: Andreas Halvorsen’s Firm Exits Visa

Legendary billionaire investor Andreas Halvorsen's firm, Viking Global Investors, sold 100% of its $1.8 billion Visa position.

Summary

Visa (NYSE:V) has been a darling of the stock market, trading at $276.37 as of August 30, 2024, up 12.65% over the last 12 months and up about 50% over the last 5 years. It has been identified as one of the top hedge fund stock picks by Goldman Sachs.

This means that many hedge funds have included Visa as one of their top 10 holdings, according to Goldman Sachs' data.

However, legendary billionaire investor Andreas Halvorsen of Connecticut-based Viking Global Investors has recently sold out the firm’s $1.8 billion holding of Visa according to the latest SEC 13F filing, filed in August 2024. Prior to this sale, Viking Global Investors had about 7% of its total portfolio invested in Visa.

If an investment firm like Viking Global Investors makes a strong move like this, it is worth paying attention to.

In addition, while not an investor per se, Democratic leader Nancy Pelosi is known for her remarkable ability to be lucky in the stock market. As per the latest disclosure, she sold in July 2024 between $500,000 and $1 million of Visa.

Following are more details on Viking Global Investors, Visa, and credit card headwinds, and important information on Warren Buffet’s recent actions.

Who is Andreas Halvorsen of Connecticut-based Viking Global Investors?

Andreas Halvorsen, a Norwegian-born hedge fund titan, has amassed a $6 billion fortune by consistently delivering top-tier returns. His firm, Connecticut-based Viking Global Investors, manages a staggering $46 billion, making it a major player in the investment world. He is largely unknown to the general public, as he likes to keep a low profile.

Despite his low profile, Halvorsen's accomplishments are nothing short of remarkable. In 2023, Viking Global achieved the third-highest absolute returns globally, cementing Halvorsen's reputation as a savvy investor. His disciplined approach to long-term, fundamental, research-based perspective on investment opportunities paid off handsomely.

Halvorsen's journey is impressive. After serving in Norway's elite naval special forces, he pursued higher education in the U.S., earning degrees from Williams College and Stanford University. He then honed his skills at Morgan Stanley in the US before founding Viking Global in 1999.

Why Would a Recession Hurt Visa?

Visa is a leading global payment processing company, the middleman that facilitates transactions between consumers, businesses, and financial institutions. For each transaction, Visa gets a fee.

However, Visa’s business is directly impacted by the financial health of the consumer. When consumers face financial difficulties and fall behind on credit card payments, they tend to cut back on discretionary spending. This reduction in spending leads to fewer transactions processed through Visa's network. Since Visa earns revenue from transaction fees, a decline in transaction volume would negatively impact its financial performance.

While Visa itself does not issue credit cards, it relies on banks to do so. If banks experience higher credit card defaults, they tighten their lending standards, which could reduce the number of new credit card accounts opened. Fewer accounts mean fewer transactions for Visa.

Additionally, increased delinquencies could lead to negative market sentiment surrounding the credit card industry. Investors may become wary of companies like Visa.

Visa currently trades at a price-to-earnings ratio of about 30, reflecting strong investor confidence. If that confidence were to erode, for example in a recession, that P/E ratio could collapse, causing Visa's (V) stock price to decline significantly, even if Visa's earnings were stable in a recession scenario (which they would not be).

Credit Card Usage Headwinds

As the famous baseball player Yogi Berra (1925-2015), known for his humorous and insightful quotes, once said, "It's hard to make predictions, especially about the future."

That remains true. Nobody knows the future. But if the sky is getting cloudier and the wind is picking up, the chances of rain are increasing and you better pack your umbrella.

That is the economic situation in the United States. Prices everywhere, including food, have risen significantly from just a few years ago. This is putting financial stress on the average consumer, and more and more consumers are turning to credit cards to cope with inflation and pay for higher prices.

According to the Federal Reserve Bank's Federal Reserve Economic Data (FRED), credit card usage is now at its highest level since 2000 (see graph 1 below), and credit card delinquencies are now at a 5-year high as more people can't pay their credit card bills (see graph 2 below).

Graph 1

Graph 2

This data from the Federal Reserve is also reflected in a recent survey by Debt.com. It states:

“In a survey of 1,000 adults, 1 in 3 (35%) say they’ve ‘maxed out their credit cards in recent years while inflation and interest rates have increased.’ Of those respondents, 8 in 10 (85%) say ‘price increases from inflation made them use their credit cards to make ends meet.’”

Is it catastrophic, yet? No. But it is getting worse, and it is time to prepare.

Warren Buffett's Cash Pile

Warren Buffett, renowned legendary investor and CEO of Berkshire Hathaway, has sold a significant portion of his stock portfolio and is sitting on a massive pile of cash. This move suggests that Buffett, known for his value investing approach, sees potential trouble ahead for the markets.

As a contrarian, Buffett is positioning himself to take advantage of future opportunities that may arise from a market downturn. According to his latest SEC filing in August 2024, Warren doubled his cash position, held in US Treasuries, from $129 billion at the end of 2023 to $234 billion as per his latest SEC filing in August 2024.

The market value of Berkshire Hathaway’s investments as per the latest 13F SEC filing in August 2024 was about $280 billion. That means that Warren Buffet’s cash position is now about 50% of his portfolio. He is clearly expecting a market crash. That is A LOT of cash parked in US Treasuries waiting for the right buying opportunity.

Warren Buffet generated this cash by reducing a number of his investments, including a significant reduction in Apple (AAPL).

The Buffett Stock Market Indicator, named after Warren Buffett, is currently at an all-time high in the US, indicating that the US stock market is extremely overvalued.

This valuation metric compares the total market capitalization of a country's publicly traded stocks to its gross domestic product (GDP).

Given the headwinds in the economy and the current valuation of the stock market, the stock market seems ripe for a major pullback, and Warren Buffett wants to go discount shopping when that happens. As Warren Buffet said,

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."

He now has a quarter of a trillion cash bucket (at least $234 billion).

Summary

Legendary investor Andreas Halvorsen of Viking Global Investors has made waves by selling his entire $1.8 billion stake in Visa (V), raising questions about the stock's future.

With Visa trading at $276.37 as of August 30, 2024, and boasting a 12.65% increase over the past year, it has been a top pick among hedge funds. However, Halvorsen's exit, alongside notable sales by Democratic leader Nancy Pelosi, suggests a potential shift in sentiment. As credit card delinquencies rise and economic pressures mount, Visa may have reached its peak.

Warren Buffet is getting ready for a major stock market adjustment, with about 50% of his portfolio held in cash equivalents.

As always, it's important to conduct your own thorough independent research and consult with a qualified licensed financial advisor before making any investment decisions.

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