In the 29 September 2018 edition of Take Stock, The Motley Fool Singapore’s free investing newsletter, I shared an interview that The Straits Times did with me. I told them about the six stocks I invested a few years back. And one particular passage I wrote in that Take Stock was this:
“But what’s also interesting is that I’ve held most of the six stocks for years before the interview was conducted (I still own them all): Facebook since July 2015; Alphabet since February 2016; Amazon since April 2014; Activision Blizzard since October 2010; Mercado Libre since February 2015; and Netflix since September 2011. Peter Lynch once said that the best stock to buy may be the one you already own – how true!”
In today’s article, I want to hone in on my experience with Netflix because the company – with a gain of over 2,000% – is currently the single biggest winner in my portfolio after 8 years of investing (I started in October 2010). But more importantly, it is because there are a few key lessons in my history with Netflix that can help you become a better investor.
So first, here’s my purchase history with Netflix:
- First purchase: 15 September 2011, at a price of US$25.81
- Second purchase: 20 March 2012, at a price of US$16.45
- Third purchase: 30 August 2017 at a price of US$171.19
And now, for the lessons… (in no order of merit!)
Lesson 1: Patience and a tough stomach are needed to win big in the market
My gains with Netflix did not come overnight. The journey was not smooth too. On August 2012 – after my two investments were made – Netflix’s share price plunged to less than US$8, representing declines of more than 70% and 50% from my first and second purchases, respectively. It was painful seeing all that red in my Netflix investments. But I was determined to hold on as I thought the company still had tremendous growth opportunities.
I was reminded by Warren Buffett’s Berkshire Hathaway. Its share price gained an astonishing 2,404,748% from 1965 to 2017. Every dollar invested in Berkshire in 1965 had become more than $24,000 in 2017. But in those 52 years, Berkshire Hathaway’s share price had fallen by 50% from peak-to-trough on at least three separate occasions.
My patience was rewarded. I’m up 1,309% 7 years later on my first purchase, at Netflix’s current share price of US$363.65 (as of 5 October 2018). My second investment has done even better as I’m sitting on a gain of 2,111% – but that also took me more than six years to muster.
Are any of your stocks in the red now? Before you rush off and sell, understand that short-term volatility in the stock market is a feature of investing, not a bug – and it’s important that we develop the ability to hang on tight to the shares of great companies.
Lesson 2: It pays to hold onto your investments even if there are things to worry about
From 2011 to today, there have been plenty of worrisome events that have sprung up in the markets. Here’s a long – but woefully incomplete – list:
- 2011: US credit downgrade
- 2012: European debt troubles
- 2013: US government shuts down; Cyprus bank bailouts
- 2014: Oil price starts falling
- 2015: Fed starts hiking interest rates
- 2016: Brexit
- 2017: Collapse of Venezuela’s economy
- 2018: US-China trade war
Some of you may not even remember many of these events, but they were (are) huge news stories that roused (is rousing) fear in the markets. I felt those fears too. But I kept my focus on what truly matters: Netflix’s business.
The scary events I mentioned did nothing to stop the ascent of Netflix – its revenue more than tripled from US$3.2 billion in 2011 to US$11.7 billion in 2017, and its global streaming subscribers jumped five-fold from 23.53 million in 2011 to 117.58 million in 2017. And Netflix’s share price has of course grown along with the business.
The trade war between the US and China is perhaps the fear du jour of the financial world at the moment. But will a trade war between the two countries really quench the public’s appetite for high-quality video programmes that are available 24/7 for a low monthly fee? Will a trade war dampen Netflix’s desire to constantly improve the quality of its programming and streaming capabilities? I don’t think so. And it’s those two factors that really matter.
Lesson 3: Investing in innovative companies with large markets can pay off tremendously
At the end of 2011, when I first invested in Netflix, 92% of its streaming subscribers were in the US. And even then, its US streaming subscriber base was just half that of the number of cable TV subscribers in the country. I thought that there was still a huge market for Netflix to grow into. Netflix was also innovative – it was already thinking about building a video streaming business right from the very beginning, back when video streaming wasn’t even a widely used term. Reed Hastings, Netflix’s co-founder, said as early as 2007 that “We named the company Netflix for a reason; we didn’t name it DVDs-by-mail.”
The presence of a large addressable market and an innovative management team are not the only ingredients that go into building a stock market winner. But when these two traits are present in a company, investors ought to take a close look.
Editor’s note: A version of this article first appeared in the 12 October edition of Take Stock.
Motley Fool Singapore analysts have identified a technology mega-trend we believe investors simply should NOT ignore. Tech revolutions of this magnitude usually come along just once or twice in a lifetime, and the companies at the forefront could make a fortune. Click here now for our comprehensive research report laying out the full story… AND one Asian stock we think is poised to win.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing owns shares in Facebook, Alphabet, Amazon, Activision Blizzard, Mercado Libre, Netflix and Berkshire Hathaway. The Motley Fool Singapore does not own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of Facebook, Alphabet, and Amazon.