Seeing the Bigger Picture
In investing, we get it wrong sometimes. It's called being human. Investing in single stocks is a constant reassessment. Just because you made a mistake in the past, doesn't mean you have to live with it forever.
In the past, I treated my Netflix (NFLX) position like a trade. I took some profits above $500 in 2021. Life was good. Foolishly, I began to doubt the security of the business when the stock suffered a 60% drawdown in 2022.
I always thought I had strong conviction to hold through bad times, but I'd never seen a stock move like Netflix did in 2022. And it wasn't just Netflix that suffered that year. Most of the stocks in my portfolio went through corrections or more extreme drawdowns. I started to look at each of my stocks and think, which of these can I really trust? I was a bit scared of seeing more stocks sell off. It definitely affected me psychologically to see my frothy gains of 2021 slowly disappear by the end of 2022. In hindsight, this was the time to buy. I did buy a lot back then, but also made some mistakes. One of the biggest being Netflix.
While I saw my portfolio under siege that year, I began to doubt how safe of an investment Netflix was. I lost sight of the big picture. Then I was thinking about how my position of 5 remaining shares was more than cut in half in a year. I started viewing my shares as a trade in terms of dollars rather than a company I own for the long term. This was my undoing. I believe this tension exists in the stock market for all of us. Am I a trader or an investor? That is decided by every move you make, buying or selling over time. In this case I was an investor who became a trader due to the extreme circumstances of losing money. It's an internal battle we all must be aware of when we buy stocks.
Subscribers growth was falling, basically only for one quarter. (Another rookie mistake, putting too much emphasis on one quarter). Now the company says they won't even report quarterly subscriber numbers. Wavering subscriber number worries were the main reason I felt uncertainty. Now the company is shifting to focus on profitability.
By 2023, 3 years after getting in, I had lost my conviction. I sold out my last Netflix share at $375 because I needed extra money and took a little last sliver of profit.
I no longer believed in the fundamentals because the stock price took a dive. For the first time in years, the growth was in question. Then, of course, it recovered. The stock went up 2-3x after I sold. It's been a hard lesson to learn. The silver lining is that the experience I gained might help me invest better in the future. Sometimes we lose sight of the big picture. Sometimes we flip from bull to bear. It happens.
When I was in business school, we'd read case studies about Netflix and how they changed the media game. They started as a mail-in DVD company and adapted into streaming. It's a great story. I have a hypothesis that the companies that make the right moves that get written about in biz school case studies are the companies you want to own, as long as they're still dominating their market.
Recently, the price skyrocketed over $100 in single trading day. Their recent Q4 earnings report showed strength. An impressive subscriber growth beat, price increases and growing live sports are positive catalysts. The big picture looks great for this company and they are growing on many facets. The difference is I was holding the stock again. It felt great to see the earnings report send shares soaring.
A month before the Q4 2024 slam dunk earnings report, I bought back in for 3 shares at $911. I decided I couldn't be on the wrong side of history anymore. I don't know what's going to happen next, but I know I want to own Netflix. This company is making the right moves. My gains aren't as big as if I had held onto my original lot, but it feels good to have some Netflix gains again. I see the big picture. This time if the stock drops big, I'll be buying more.