No divorce is easy. I am currently going through a painful one. But just like all divorces, I believe it’s for the better, especially for my mental well-being in the long term.
What, Tracy? Hell no! Geesh! Other than God, she’s the best thing that ever happened to me. I would divorce drinking water, blood circulation, and Vietnamese food before leaving Tracy.
I am talking about selling a stock I have owned for a decade – Netflix. I hope my story will help you to know how long you should hold a stock, and when it’s time to say goodbye.
Before I tell you why I am selling, let me tell you what Netflix meant to me.
My love for Netflix started when I was trapped in an abusive relationship with Blockbuster, which I believe was God’s punishment for a disorganized mess like a young Jia. Once upon a time, I used to rummage through isles of DVDs, hoping to find a disc cover that looked fun and had a familiar face on it. Then I would take the cover to the cash register, usually operated by a 19-year-old with a bad attitude, praying that the DVD would be available in store. If I got lucky and the DVD was available, I would rent it and take it home for four days. Then my ADD would manifest, and I would forget about it for three and a half days. Finally, the night before it was due, I would panic-watch the movie. More likely than not, the movie was a disappointment where the plotline was insane, and the acting was miserable. To be fair, sometimes I would catch a good movie. But either way, one thing was almost inevitable: I would still, somehow, find a way to return it late.
Boom, the late fee!
The shame, the regret, the self-loath.
Hello, darkness my old friend!
Then one day, in 2005, I heard about this internet site called Netflix, where you could pick DVDs from a category of thousands of movies. You can store all the picks in a queue, then a couple of days later, the first DVD would show up in your mailbox. You can watch it for however long you want. And when you are done, put it back in the mailbox. Then, a few days later, another one would show up. It was a miracle! There were also reviews for each DVD, and you can almost guarantee the movie quality was at least decent. And the best part, no late fee! And no depressive thoughts or the need for self-help books to fix my character after every late return.
Going from Blockbuster to Netflix was like after dating a needy, self-centered girl filled with jealous rage for years, you meet Tracy, a woman who was put on Earth by God to bring joy to others surrounding her. It was not only love at first sight, but also deliverance (no pun intended) from evil and suffering.
Then it got even better. In 2007, Netflix started a streaming service, where you don’t even need to wait for the DVDs anymore. By the click of a button, the video would start playing on your computer, whether it was best-selling movies or great shows like Breaking Bad or The Office. When it first happened, it invoked gasps, tears, and the feeling that technology would one day solve all my problems. It let me taste the sweet dews of Heaven before I had to die.
Oh, what a simpler time it was!
And guess what, it got even better!
In 2013, Netflix started to produce its original shows such as Orange Is the New Black, Master of None, House of Cards, and Stranger Things. Moreover, it began to produce countless comedy specials, which I devoured. It was like after marrying Tracy, you then came to realize that she was amazing at work, started to master cooking skills, developed a love of sports and willingness to watch games with you, then became the best mother your kids could hope for. They say it’s a gift that keeps on giving. I say it’s a miracle that keeps expanding.
Another part of my relationship with Netflix was also shining through – its stocks.
In 2010, I started to experiment with the Love Investing philosophy, where I disregarded all business analysis and expert opinions, and picked stocks solely based on how much I enjoyed the company’s product and services. When I formed my first love portfolio, Netflix was one of the ten stocks.
Over the years, countless “money experts” proclaimed that Netflix’s business fundamentals made no sense, and its stock was dangerously overvalued. The company was losing money hand over fist. Netflix was a one-trick pony, and other tech giants such as Amazon and Apple’s entry into the market would crush it. Netflix shareholders are hot stock chasers, and the smart ones would get out before the impending and inevitable crash.
I disregarded all… well, most (I’ll explain below) of this smart-sounding punditry and continued to buy and hold Netflix. Its stock performed like a shining star. Its return doubled, tripled, quadrupled, and made over six figures of gains for me. It is the quintessential love stock, bringing me a combination of joy and wealth.
There was one period of exception when the noise got to me.
Just like all marriages, there could be temptations, mistakes, and even unfaithfulness. Mine with Netflix wasn’t without a rough patch. In fact, I had an affair. And it was all my fault.
In 2011, CEO Reid Hastings announced that in an attempt to streamline the business, Netflix was splitting the company into two separate companies – Netflix, which focused on the streaming business, and Qwikster, which focused on the traditional DVD rental business. Based on industry trends, the move was a sound and brave one. But it was mercilessly mocked and criticized, for no reason other than how bad the name Qwikster was. As a result, the stock fell by 70%. The backlash was so significant that Reid Hastings had to reverse his decision weeks later.
Seeing the stock drop and listening to the punditry from “money experts,” I buckled. Did Reid Hastings just go insane? Did the management lose the magic touch? Is this the start of the downfall for Netflix? In a panic, I sold all my Netflix stocks.
Over the next two years, I put my money into other stocks and tried to forget about Netflix. I pretended that I’d never owned its stocks, but I couldn’t. Because as I continued to use Netflix services, I couldn’t get it out of my mind. Whenever I went to the website to watch my favorite shows and saw the cute red logo, all my memories would rush back. I knew deep down, I was still in love, and I should have never listened to the “money experts” and be swayed by their mockery and cynicism.
It was even worse watching its stock. A few months after I sold my Netflix shares, it would continue to fall, which made me breathe a sigh of relief. But after a year, the Qwikster debacle blew over, and the “money experts” shifted their ‘analysis’ and ire to some other amusing news, and Netflix stock made a resounding come back. It went from $9.12 to $46.60. Every time I checked the price, I knew I screwed up.
Some people call human psychology a funny thing, but I would call it a bitch. I was the victim of the Sunk Cost Fallacy, which causes people to repeatedly double down on their mistakes because of how much monetary and emotional investment they have put into those mistakes. Because of my decision to sell Netflix stock, I couldn’t come to terms with the fact that I screwed up, and continued not to amend my mistake. I hoped against reasoning that Netflix would fall back down to earth to prove that I indeed made the right decision. It’s like after you dump your ex after a big fight, you still have feelings for her, so you go to her Facebook page hoping to see she’s equally miserable, only to find that she’s doing fantastic and is happier than ever.
There is one crucial difference between loving a person and a company. When you break up with a person, you might never have a chance to get her back. But with stocks, you always have a chance. Because my love for Netflix services had never wavered throughout the process, after three years, I admitted my mistakes and added its stock back to my love portfolio. By then, its price had tripled from when I sold it. It was a humbling and painful experience. Had I not sold Netflix and held it through the Qwikster debacle, I would have made over $300,000 more over the years.
They say it is better late than never. You learn from your mistakes and turn them into life lessons, albeit excruciating ones. The lesson it taught me was to listen to your heart and follow your love, never punditry and “analysis.” The latter ones are noise that will lead you astray. That principle has made me a lot more money with my other love holdings. It all worked out in the end.
Now, having read my romantic history with Netflix, you might be wondering why I am writing about divorce. In fact, Netflix is doing better than ever. As of today, August 23rd, 2021, its stock is at $555. It has added more than 1.5 million subscribers in the latest quarter, adding to 209 million worldwide. Its international growth is especially robust, especially in Asia-Pacific (APAC). Its revenue grew by an impressive 18.7% quarter-over-quarter to $7.3B. It has maintained guidance of 20% operating margin for all of 2021, up from 18% in 2020.
If you crossed your eyes after reading the paragraph above, I don’t blame you. I almost dozed off myself while writing it. All these fancy numbers say Netflix’s business is doing great. But trying to sound like a smart analyst usually makes one sound like a douchebag, and it it clouds the core principle of Love Investing – your personal love for the company.
And this is the reason for my divorce from Netflix:
I don’t love it anymore.
In my personal relationship with the company, there were two momentous events for the past two years: Disney launching Disney+, and NBC launching Peacock. No, I don’t care about the increase in competition. In a market economy, competition usually elevates the quality of all players. However, in the case of streaming, it made Netflix worse. A lot worse.
Disney moved all its intellectual property from Netflix to Disney+, including all the Disney, Star Wars, Pixar, and Marvel films. These were the movies I grew up and grew old with. Not being able to watch them made Netflix much less attractive. But the killing blow was The Office, the show that I first watched after graduating from college. I’ve watched it three times and was in the middle of watching it for the fourth time when NBC took it away from Netflix. It practically cut my Netflix time by more than half. At the time, it was still the #1 watched show on the platform. It goes to show that I am not alone.
To make things worse, I haven’t gotten into any new Netflix shows at all for the past year. The shows I have been watching lately, such as Succession, Barry, Ted Lasso, Space Force (I like Steve Carell. Sue me), none of them are on Netflix. When I checked Netflix a few weeks ago, I was shocked by how little I have been using it and how unfamiliar the whole thing has seemed to me. It’s like one day you go home and see your partner, you no longer recognize that person.
This is the tell-tale sign that I am no longer in love, and it’s time to file for divorce. OK, I would never file for a divorce in real life. But in Love Investing, without hesitation, I am selling my stocks, the shares I’ve cherished throughout all these years.
How Long Should You Hold a Stock?
On the stock market, company shares are traded based on business performance revealed through quarterly earnings, which is public information to everyone. When the earning reports come out, the stock instantly moves up or down. We, as everyday investors, don’t have any advantage when it comes to that information. Moreover, business performance is a lagging indicator, not the leading one. It’s like when the smoke comes out of your car, and the brakes stop working, it’s already too late.
That’s why, in Love Investing, we focus on the leading indicator, the quality of the product and services. And you should hold the stock for as long as that quality is still top-notch, and sell as soon as the quality dips significantly..
How do we know the quality?
It’s the equivalent of knowing how many times you’ve changed your car’s oil, transmission fluid, or brake pads. That information is personal to us, and only available to our hearts. That’s our advantage over the Wall Street traders. Their multi-million-dollar computers, financial models, and Ivy League degrees only work on the lagging indicator. Our hearts, lifestyles, consumption history work on the leading indicator.
Is it possible that I could be wrong to sell Netflix, and its shares would explode higher to make me look like a fool in two years? Maybe, but I don’t care. If I don’t love a company and still hold its stock because of some fancy prediction about its business performance, I become an analyst. Without love, the most crucial insider information I have, I would lose sleep over its volatility. I would second guess myself every day on whether to continue to hold, buy more, or sell. That’s not my game to play. And that’s not a Love Investor’s game to play. The stocks I still love will make me enough love money anyway.
I wrote these parting words to the company I once held dear:
Dear Netflix, I had loved you mad, I will cherish every moment we’ve had, From the DVD envelopes, to The Office, and Breaking Bad. You made me happy, and made me rich, I can write you love letters page after page, And your stock gain made me look like an investing sage. I’m sorry for being unfaithful, I apologize for my sin, When you spun off Qwikster, I sold all your shares and bought LinkedIn, I should have stayed with you through thick and thin. But now it’s different, I can no longer say I love you, Your stock might still go higher, but that’s not the issue, When the feeling is gone, no money can come to the rescue. Bye bye, Ms. Red Logo, It won’t matter what’s trending on international, I just hit the sell button and let you go.