Warren Buffett’s Berkshire Hathaway has made significant investments in Visa and Mastercard. These two companies control a large portion of the U.S. credit and debit card market. In 2011, Berkshire established positions in both companies, and these investments have proven to be very successful.
Visa and Mastercard benefit from the “network effect.” This means that as more people use their payment methods, the companies become more valuable. Merchants want to accept payment methods that many customers use, and customers prefer using widely accepted methods. This creates a cycle that strengthens the position of the dominant players over time.
Visa and Mastercard control 86.5% of the U.S. market for credit and debit cards. This is up from around 81% in 2007. Some estimates suggest they could control over 90% of the market over the next decade.
Buffett’s network effect strategy
Despite their strong market positions, Visa and Mastercard stocks still offer reasonable valuations. Visa trades at 31 times earnings, while Mastercard trades at about 37 times earnings.
This is compared to the S&P 500’s 28 times earnings. Considering their robust earnings growth—around 15% annually for Visa and 30% for Mastercard—these valuations seem justified. Buffett’s portfolio decisions through Berkshire Hathaway are closely watched by many investors.
His investing style typically favors businesses he can hold for decades. One key characteristic he looks for is the “network effect,” which Visa and Mastercard clearly demonstrate. If you want to align your portfolio with Warren Buffett’s strategies, Visa and Mastercard are compelling options.
These companies benefit from powerful network effects that make them increasingly dominant as they grow. Looking ahead, they are likely to maintain, if not increase, their market dominance.
