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Simon’s July Outlook: “My Greatest Selling Mistake”

Simon describes how Netflix was his greatest selling mistake.

July 13, 2020

Let’s have our time machine rewind the clock by a decade.

It was January 2009, and I was convinced that a company called Netflix (Nasdaq: NFLX) would become a leader in the new field of “digital streaming.” Stocks still hadn’t recovered from the financial crisis and Netflix seemed worthy of a modest investment. I bought 62 shares for $32.37 apiece, putting $2,000 to work and looking forward to seeing how things would go.

What happened next was simply incredible. Streaming became a huge hit and redefined the economics of Netflix’s business. Rather than shipping DVDs all over the country, the company could now just offer its content library to subscribers over the internet. Netflix became the darling of the financial media, and its stock went on to quintuple during the following 18 months!

For me, this was extremely exciting. I was just wrapping up my MBA, and was giddy about the thought of using Netflix to cover my rapidly-mounting student loans. If I sold Netflix’s stock, I could pay down the debt and avoid those brutal 7-8% interest rates that I was being charged. A no-brainer decision. Right?

And so I sold. I cashed out 50 shares at $162/each in September 2010, and then the remaining 12 for $227/apiece in February 2011. It was liberating and exhilarating, withdrawing that $10,800 and feeling great that I’d scored a 5-bagger in just two years.

The following years were significantly less exhilarating – at least from the perspective of someone who just sold. I watched Netflix’s dominance in digital streaming continue and its stock price continue to soar. After a 7-for-1 split in July 2015, NFLX trades hands today for around $500 per share.

That means that on a pre-split basis, the shares would be valued at around $3,500. And compared to my purchase price of $32.37, Netflix would have become a 100-bagger for me today.

I went on to buy, sell, and re-buy several more shares of Netflix in the future, but they were all at higher prices. It would have been much more profitable for me to just add to that initial stake.

Even a decade later, the painful-yet-insightful moral of the story remains the same. If you find and invest in category-leading companies who are disrupting industries, hold on for the longer-term!

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