Full Disclosure Finance

By Andrew,

In a recent post I commented on the Visa (V) IPO and how I thought you should play it. The post was also published on Seeking Alpha, which is a financial site that publishes stock related posts from various blog sites and individual contributors. On the Seeking Alpha post a number of readers have left comments giving their two cents on Visa as a stock purchase. As you can expect the overwhelming majority of these comments are bullish. Considering that Visa was one of the most sought after IPOs in US history, this isn’t surprising. What was surprising was the over-the-top blind faith by some readers that Visa stock would do nothing but rise in value. Take a look at some of these comments…

“If you have a 3 year or longer horizon, this is a great entry point! It will trade at $200 in 3 years or less. If you are a trader, you will see choppy waters short term; after all, all the banks in deep capital need will sell to raise capital.”

Alright, so I agree with this reader, you probably will see choppy trading in the short term and with a 3+ year horizon this may be a very good entry point. But considering the hype around the IPO why not wait for this one to come in a bit before building your position? And the $200 price target is completely baseless. This next one is even better…

“i am 18 and bought about 1200 dollars worth at 59.5 and i think by the end of the year this stock will have a fair value of $80. with VERY little risk and a lot of upside earnings growth and the possibility that down the road visa europe will join the company there is too much upside to be had not to get in now.”

I’m not sure where this reader comes up with the $80 valuation or the upside earnings growth considering at this point we have very minimal visibility into the financials or growth projections at the company. And saying that there is VERY little risk in a market as uncertain as this one is dangerous thinking to say the least. Here’s my favorite…

“This is definitely a great stock to invest in… It might go up and down for a few days, but in the matter of a few months, maybe a few years, it will definitely be well over $200.00″

Again the $200 price target, and possibly in a matter of a few months none the less. Maybe the reason that these readers are throwing around the 200 handle is because MasterCard (MA) is currently trading around $220. Just because these two companies have the same business model does not mean that Visa is going to follow what MA did post-IPO. There are a lot of other factors that investors must consider and I don’t think the casual, first-timers realize this. When investors make investment decisions based on sentiment and blind statements like these, essentially what they are doing is gambling. Investments must be made on sound homework into the fundamentals of a company; anything else is downright dangerous. I’m not knocking Visa here, these readers may very well be right. But if you are going to pitch a bullish outlook in a stock you better be able to back it up with logical arguments. Do your homework before you put any money down and make sure you understand the whole story. Because the risk that comes with making decisions based on a lack of information can turn the VERY little risk that our reader talks about into a poor investment in a hurry.