MF Stock Advisor - Ten Years On
Board: SAS Netflix
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I first got interested in investing as a way to build for the future after hearing about the Motley Fool from an older co-worker back in the late '90s and picking up one of the Fool's books that she had recommended to get me started. I muddled along for a while and felt some of the artificial joy of the dot-com bubble and the not so joyous times as the bubble popped. I learned some valuable lessons to be sure, but somewhere along the way, I realized that I needed a bit more of a helping hand.
In May 2003, I signed up for the Stock Advisor service. I'm not sure which of the Stock Advisor picks I first added to my portfolio, but looking back at the David vs Tom list from that era, I see quite a few familiar names. Mostly looking like a list of old flames. The ones that got away. The ones where things turned bitter. The ones that just weren't a great fit, but we parted on amicable terms.
In one of the first issues I received, Netflix was David's pick of the month. At that point in time, I knew little about them and has often been the case over the years since, I couldn't immediately see what David saw in Netflix. However, little by little they started showing up in my periphery. I heard friends talking about them. I read about them on the web. I kept seeing tantalizing Netflix coupons at Best Buy. And, of course, the red envelopes started appearing on peoples' mailboxes around the neighborhood for collection.
Back in my college years, I was a film major working for a mom and pop video store called Video Vault that was based in Alexandria, VA and had a store in Georgetown too. It wasn't just any old video store though - the owners were obsessed with having every title imaginable, from the mainstream to the the most obscure cult films that ever existed. They also had a rental by mail service that they advertised in magazines like "Psychotronic Video", catering to a wide range of film buffs. Part of my workday was plucking lists of VHS tapes off the shelves to package up and ship off to all corners of the country. The viewers were limited to a small number of titles (to avoid wholesale theft) and presumably, when they received their box of titles in the mail these eager customers quickly dubbed them and then sent them back and waited for their next batch. Sound familiar?
So, Netflix was not just a business that I could understand, but also one that I could fully embrace. I could see how it could succeed in the long term.
On this day (September 18th) in 2003, I bought my first Netflix stocks - a two thirds position at a little over $18 a share. Ironically, a month or two later, Stock Advisor recommended selling Netflix after nice run up in the stock price. I chose to ignore the advice, because I could see and believe that Netflix, as it was then, was poised to make the familiar mom and pop video stores virtually a thing of the past. The big question was whether it could gather enough momentum to overcome the likes of Blockbuster. To me, the long tail approach was the thing that Blockbuster was missing, the thing that kept a movie buff like me out of their stores. It was also the thing that helped specialty video stores survive a lot longer than their less diverse small competitors. I saw the same thing happening with record stores (another passion of mine). Finding your niche is a big key to long term survival. The market wasn’t so sure and approximately a year later my Netflix holdings had lost roughly half their value (after almost doubling) as Netflix battled away with Blockbuster. Talk about a roller-coaster.
I did not panic and I held onto my shares. However, I was not confident enough to add to my shares either and complete my position. So, I moved on to other things. However, in early 2007 Netflix announced their streaming service and I could see a glimpse into the future of movie delivery. This prompted me to add the final third to my portfolio at about $23 a share.
After five years of ups and downs, Netflix started to gain serious traction on the back of the adoption of its streaming service in the U.S., aided in large part by working with electronics manufacturers to get their application on as many devices as possible, and the beginnings of its international expansion. So, in early 2011, as my value had increased to over 900% on paper, I reluctantly sold a small fraction of my shares, after holding for over 7 years, in order to invest in some other stocks to help diversify my portfolio. The company’s announcement that it would soon start delving into original programming signaled the next step in their evolution, which helped to raise their profile (and stock price) even further.
When the Quikster incident happened, I kicked myself a little for not selling a bit more as the share price plummeted, but not too hard, because I still believed in the future that Netflix was selling me. If I hadn’t believed it, I would not have held on to my stocks. The future of what we once called a “channel” or a “network” is what Netflix has been building over the years and to me, none of that had changed overnight. There will always be choices and there should be, but I believe that Netflix has positioned itself to grow into one of the biggest and the best programming destinations out there.
A decade ago, I would never have thought that Netflix would be making history as the first online network to be nominated for a primetime Emmy award and perhaps this Sunday even winning one of the major awards. No one can predict the future, but a decade from now, I hope to see the Netflix vision fulfill its potential and I also hope to be celebrating another milestone anniversary with Netflix at the heart of my stock portfolio.
I would like to thank everyone who has contributed to this board and all the other boards over the years for helping to make sense out of company philosophies, complicated accounting structures, valuations, media spin and all of the other things that go into making investing such a challenge for non-professionals. It really is a team effort.