Selling This Stock Could Destroy Your Portfolio

Two years ago, at the peak of the financial crisis, I bought Netflix (Nasdaq: NFLX  ) close to $24. Today it's worth about $152 a share, for a whopping 525% return. My $17,000 original investment's value? An outstanding $120,545.

That is, if I hadn't sold at $45. Take the next four minutes to profit from my $100,000 mistake.

Buying a winner
My purchase thesis was spot-on. Netflix's key competitor, Blockbuster, began aggressively pricing its own DVD-by-mail offering. This, combined with broader economic turmoil, led to a weak quarter for Netflix. The market responded strongly, pounding Netflix's stock down 13% in a single day.

I was quite sure the market was overreacting.

Blockbuster had more than $700 million in long-term debt, versus Netlflix's almost $300 million in cash and short-term investments. Netflix had already fought off Wal-Mart and Amazon, and Blockbuster would not be a challenge. I knew the analysts and market had it all wrong, and I was going to do my best to profit from it. I backed up the truck, and ultimately I was rewarded, receiving a near-double on my investment in less than a year.

Doubting (and selling) a winner
Since you know where this story ends, I'll cut to the chase. I began doubting how much more Netflix could rise, even though it was, and remains, the stock most recommended by David and Tom Gardner in Motley Fool Stock Advisor:

Advisor

Date Recommended

Recommendation Price

Return

S&P Return

David Gardner 10/1/2004 $15.42 914.2% 0.5%
David Gardner 12/17/2004 $12.98 1104.9% (4.8%)
David Gardner 6/16/2006 $27.05 478.2% (9.2%)
David Gardner 9/15/2006 $22.58 592.6% (13.8%)
Tom Gardner 6/15/2007 $19.72 693.1% (25.8%)

In addition to head-nods from the founding Fools, I had several other advantages over Wall Street:

  • I had been a customer and follower of the company for years.
  • My profession is running Web businesses. At Fool.com, I obsess over the same metrics Netflix reports on every quarter.
  • Stock Advisor had an exclusive interview with Netflix CEO Reed Hastings in 2005. The bigwig analysts on Wall Street probably didn't bother reading this. I studied every word.

Instead of utilizing the advantages that I had, and focusing on Netflix's long-term growth story, I paid attention almost entirely to the price of the stock. "Netflix was a double in a year," I exclaimed. "How can it keep rising?" Others backed me up, using the same less-than-valid rubric, and I took action, selling 100% of my Netflix holdings over the course of a few weeks.

This was pure ignorance on my part, and it's the greatest investing lesson of my lifetime. Now, I sincerely hope I can apply it to some of your holdings to keep you from making the same mistake.

Let's go through some other high-flying stocks near their 52-week highs, and I'll give you good reasons not to sell them today based purely on price.

Company

Recent Price

52-Week High

% of 52-Week High

Apple (Nasdaq: AAPL  )  $289.19 $294.73   98%
Sirius XM (Nasdaq: SIRI  )  $1.27 $1.31   97%
Annaly Capital (NYSE: NLY  )  $17.84 $18.99   93%

Source: Capital IQ, a division of Standard & Poor's.

Apple
Why not to sell:
Don't sell Apple if you believe the iPhone will continue to be the dominant device in the smartphone category, and that other tech giants will continue to flounder in the industry, similar to the Microsoft (Nasdaq: MSFT  ) Kin debacle in July.

Why sell: Sell if you believe Apple will misuse its $40 billion mountain of cash. By not returning the cash to shareholders as dividends, as Fool analyst Eric Bleeker suggested in June, investors are putting an increasing amount of faith in Steve Jobs' ability to create shareholder value in other ways.

Sirius XM
Why not to sell:
Don't sell Sirius if you believe the size of the premium radio category has yet to be defined, as fellow Fool Rick Munarriz stated on Tuesday. Don't sell Sirius if you think that a decrease in the churn rate and increased subscribers (more than 20 million) are positive indicators of things to come.

Why sell: Sell Sirius if you believe it will have trouble repaying or continually refinancing its $3 billion in long-term debt.

Annaly Capital Management
Why not to sell:
Don't sell this REIT if you believe in the sustainability of its 15.4% dividend, and that the mortgage-backed securities it holds are of a higher quality when compared to others in the category, such as riskier spinoff Chimera Investment (NYSE: CIM  ) and American Capital Agency (Nasdaq: AGNC  ) , which sport 17.7% and 20.8% yields, respectively.

Why sell: Sell Annaly if you believe a high-interest rate environment is approaching. Since Annaly makes its money on the spread between low-interest borrowing and purchasing high-interest securities, a macrodriven rate change would damage its spread, and ultimately put its dividend at risk.

What you didn't see
I didn't mention price in the above write-ups for one simple reason: Where a stock has been is absolutely not relevant to its growth prospects. That's what David Gardner has been telling members of Stock Advisor and Rule Breakers for years. It's advice I wish I had heeded, as I'd be $100,000 richer today.

From now on, I'm sticking with Dave. I suggest you do the same.

His rule-breaking team has active recommendations on the next great companies, regardless of price.

The Fool has created a five-page free report explaining how two video game leaders are set to skyrocket as their niche grows into a $91 billion dollar market by 2015.  If these companies are successful, does it really matter if they are at their 52-week high?  Not a chance!

To get instant access to this report, click here now.

Jeremy Phillips owns no shares of the companies mentioned in this article.

Microsoft is a Motley Fool Inside Value selection. Apple and Netflix are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Annaly Capital Management, Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


Read/Post Comments (41) | Recommend This Article (179)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 07, 2010, at 3:39 PM, foolishsyrup wrote:

    Very great article. Exellent. Bottom line is that you need to remember that stocks are supposed to be long term commitments and selling quickly and early is a bad idea. If Mr.Y just bought, say, Sirius XM and he feels it'll nose dive because of it's debt ( as pointed out in this article), he might sell out of fear when he should keep it and wait till it begins to nose dive, then quickly pull out to save face, OR BETTER stay in and see if it rebounds. If he invested earlier and has had it for years, then it would be smart to pull out immediatley OR JUST AS GOOD stay in anyways to see what's next. It's all a matter of controlling your investing emotions, fear and greed, so you may make rational decisions.

  • Report this Comment On October 07, 2010, at 4:23 PM, southernbeachguy wrote:

    Good Article, I think the upside potential for Sirus is more than Netflix! I have been holding 115,000 shares with an average PPS of .19. I have made a nice profit, but think it has a WAY to go, so I am holding. Just say, 20 million subscribers and all paying REOCCURING revenue. Sirus will be a Goldmine.

  • Report this Comment On October 07, 2010, at 5:20 PM, isaquejr wrote:

    I'm not so sure about Apple because the difference between iphone 4 and android phones today is very slim, not like the difference between 3Gs and the competition at that time. You have big players in the game like Samsung allied with Google that for sure will not give Steve Jobs a good night of sleep. Phones are fueling Apple and you just have to experience a Samsung Galaxy S to see that Apple's monopoly is getting less of a monopoly.

  • Report this Comment On October 07, 2010, at 5:44 PM, mikecart1 wrote:

    SIRI will come back down to near $1 again. Amazing how short the memories are of investors. There is all this debt that will not "magically" disappear.

  • Report this Comment On October 07, 2010, at 5:45 PM, Glycomix wrote:

    After dropping $20 in the past week, Netflix still has a PE ratio of $61, the level at which Warren Buffet took his value-stock company out of the stock market in 1968, saying that the stock market was overpriced. As in the 2001-03 tech-stock bubble, the over-exuberance of stock buyers cost many their life-savings. The same thing was true in the real-estate market until 2007, when the subprime mortgage crisis started the global depression.

    This premium price for the stock makes me wonder, "when is it too expensive?" This stock doesn't repay its investors except in the stock price. There's no common share repurchase program or dividend to reward the investor with a return. I understand that Netflix is a growth stock However, I'd like to hear why Netflix is still worth its price.

    I am not challenging your assessment. I merely want guidance, some metrics that we can apply to determine when the stock is valuable or not.

    What is the metric for DVD and online movie rentals? Why doesn't the IPad threaten Netflix's hegemony in the movie rental arena? With the IPad, you can continue to watch your movie while waiting for the kids to come in from soccer practice or while traveling on a subway.

    Please explain Netflix's unique strengths that would enable the stock to keep its premium price, or provide a metric to determine when it is a good buy and when it isn't.

    Here are some examples of why people buy other expensive stocks like Apple or Google.

    VALUE EXPLANATION 1 WITH METRICS: Apple.

    Apple at $289.22 has a PE of $21.78 and a forward PE of $16.45. It could supports a premium price because it has contract for China's emerging wireless phone system and a worldwide base for its ground-breaking iphone and ipad.

    VALUE EXPLANATION 2 WITH METRICS: Google.

    Google has a PE of $22.93 and a forward PE of $16. The $16 PE is a levels that Warren Buffet says that stock may be considered a 'value.' Google's main business is in advertising on its premium search engine and on smart phones. It has the android to challenge Apple in the smart phone arena and its free online cloud web-apps are supposed to challenge Microsoft's dominance in word processing.

    What products or advantages does Netflix have? Please give me a specific metric and explain at what point would you consider Netflix to no longer be a good buy?

  • Report this Comment On October 07, 2010, at 5:59 PM, steveelcpo wrote:

    Analysis looking through the rear view mirror is always spot on. However, in the real world, we don't have that luxury. No matter how well informed, or how much financial number crunching is done, that $21/share gain in Netflix could have evaporated and you end up at break even, or worse, a loss. Instead you made a $21/share profit, nearly doubling your money. In hindsight, you could have put in a stop loss and/or sold covered calls to take advantage of future increases while protecting yourself from any decline, but you made a profit. I would guess that for everyone of these "I wish I'd held on" stories, there's a "I shoulda sold it when I had a profit" story to go with it. This story is well written and provides good insight, and may teach a lesson, but if you invest with a goal to (a) hold until a certain target price is reached, and (b) sell when that price is attained, why kick yourself later. If the analysis looked good at the time, then rejoice in a good profit.

  • Report this Comment On October 07, 2010, at 6:25 PM, TMFMoby wrote:

    Hello Glycomix – Thanks much for the comment. First I’ll say I’m not putting new money into Netflix at current prices. This is very different from holding a stock you already own.

    The intent of this article is that David Gardner has preached (and I now believe) that valuation becomes a non-issue for long-term viable and disruptive companies, of which Netflix is both. Even though their current valuation doesn’t support their current business, Netflix will look for extensions of their core business that disrupt other industries and geographies. Fool Travis Hoium calculated that Netflix needs 54% of the US television households to justify their current valuation with their current business model:

    Here is his article: http://www.fool.com/investing/general/2010/09/16/sell-this-s...

    But the point is that Netflix, a company with a great and profitable business model, little debt, and a good chunk of cash on their balance sheet can use their current market-leadership position to pivot into new opportunities as they see fit. In that way, they transcend traditional valuation, a lesson I did not learn until recently.

    Check out this quote from Netflix CEO Reed Hastings: “The percentage of our time we spend on DVD by mail [still Netflix's biggest revenue source by far] is tiny. We’re entirely focused on streaming.”

    Source: http://newsonomics.com/reed-hastings-six-lessons-for-the-new...

    He’s focused on tomorrow’s disruptive business model, not today’s.

    That all said, I did want to provide you with some metrics specific to Netflix. I keyed in on two items Netflix focuses on internally to judge the health of the business:

    1) Churn – the percent of total subscribers canceling their service over a given time period. In Netflix’s case, it’s reported as a monthly number. A severe increase in churn, or decline in its inverse (retention rate) indicates Netflix is having issues pleasing their current customers or is bringing in unqualified customers.

    2) Subscriber acquisition cost (SAC) – how much it costs to bring in new subscribers. Compare this number to their average price plan and you’ll know how many months in takes Netflix to break-even on a new customer. If this spikes, then Netflix will have to decide between lower margins per new customer or lower top-line revenue (by throttling their advertising.)

  • Report this Comment On October 07, 2010, at 7:48 PM, easyavenue wrote:

    I think it was Buffet but it may have been Munger, who said (I'm paraphrasing): 'When you buy a stock you're not investing in the stock market, you're investing in a company.'

    I tend to forget this amidst all the hoopla and sensationalism today's financial media throws at us. Like most investors, I suppose, I read quite a bit every day on the web and in my local paper. I see lots of persuasive, snappy writing. Even though they all have the disclaimer at the bottom, you'd swear they are trying to convince you to buy or sell the subject stock. I also save so many web sites that I find I now have to periodically go through my bookmarks and cull out the ones I simply, for whatever reason, don't visit. It's either that or scroll a lot.

    With the above advice on buying a company in mind I recently forced myself to look at my portfolio as individual companies and asked myself if I still had faith in the success of each one. The answer was no to a few of them. Obviously I found this exercise very helpful because it led me to a different conclusion than a price, chart and pundit analysis.

    Thanks for a great article!

    EA

  • Report this Comment On October 07, 2010, at 7:55 PM, easyavenue wrote:

    I agree with steveelcpo. Best to have perhaps sold some when it reached your target. Then rejoice in goal correctly identified and achieved. But also then, and here's the lesson, a trailing stop could have made you a LOT more money.

  • Report this Comment On October 07, 2010, at 8:04 PM, xetn wrote:

    Great article and lesson. I made the very same mistake only different numbers. I feel your pain of the missed gain; poetically speaking.

  • Report this Comment On October 07, 2010, at 8:17 PM, Borbality wrote:

    Also have to agree with steveelcpo. It's not exactly "destroying your portfolio" by doubling its share price. I mean it sucks to have sold when it was still going way up, but as long as I don't lose money I am pretty happy. I don't have the stomach for a lot of risk, but I think this works better for me than the opposite approach.

  • Report this Comment On October 07, 2010, at 9:09 PM, dillon53 wrote:

    Referring to David's December 2004 recommendation at $12.98/share and Jeremy's $17K investment and what it would be today had he not . . .

    How about this: inherited 135K in April of 2004. Had no idea about NFLX. If invested 100K at $12.98/share (not to mention $174 about 1 week ago), today at approx. $151/share it would be worth $1,163,328. We could quit our jobs and live off the dividend.

    But as the saying goes, "If my aunt had a ....., it would be my uncle."

  • Report this Comment On October 07, 2010, at 9:25 PM, dillon53 wrote:

    Meant to say . . .

    Referring to David's December 2004 recommendation at $12.98/share and Jeremy's $17K investment and what it would be today had he not . . .

    How about this: inherited 135K in April of 2004. Had no idea about NFLX. If invested 100K at $12.98/share, today at approx. $151/share (not to mention $174 about 1 week ago) it would be worth $1,163,328. We could quit our jobs and live off the dividend.

  • Report this Comment On October 07, 2010, at 10:02 PM, Glycomix wrote:

    Thank you TMFMoby, I appreciate your help. I've been confused on how to evaluate Netflix's value as a stock. Its share prices have gone up enormously. Netflix might still be a value despite its price. Some say that Apple and Google are values although they cost twice to four times a share as much as Netflix.

    I'm struggling on HOW to evaluate Netflix's value. I know that a company is more than its numbers, just as a man is more than his shoe size. However, the shoe-size may give us a way to judge the man, an evaluator may use it to judge on how big the man is.

    As easyavenue might say, Buffett's wouldn't buy a company unless he knew what it was worth as a whole: what money its making per share whether it's valuable at its share price,[($assets - $debt)/ # shares]. You have to be making money, but valuable assets are useful as collateral for hard time. If the company has valuable assets without making a profit, the owner should sell the pieces their value.

    Warren Buffett wouldn't buy anything without looking at the numbers first hand. Mary Buffett has written a book on how Warren analyzes financial statements to find competitive advantages.

    http://www.amazon.com/Warren-Buffett-Interpretation-Financia...

    In evaluating a company, one might ask What are its (Netflix's) competitive advantages and what might threaten them?

    The Churn and Subscriber Acquisition Cost (SACs) metrics may be valuable aids in determining how well Netflix's is doing now and in future.

    If you, or any other expert, would care to enlighten us (me) further, here are some questions:

    1. What are excellent, average, and poor, numbers for Churn and SACs?

    2. Where might one find data on Churn and SACs for Netflix to compare with its competitors?

    and

    3. What do these numbers tell you if they're excellent, good, average, or poor? How consistent are these benchmarks in differentiating good, average and poor investments? How does one judge a company that has a high PE and is still a buy? Growth rate = expected income/share and plugs into the price but this doesn't fit for Netflix.

    As to why Netflix grew, I understand that its customer felt very satisfied that ordering Netflix's DVD's because its software could predict which movies you'd like and could make suggestions.

    That's a valuable customer-service skill , but is it enough to grow forever? I think you gave me the answer to that question.

    "Fool Travis Hoium calculated that Netflix needs 54% of the US television households to justify their current valuation with their current business model: http://www.fool.com/investing/general/2010/09/16/sell-this "

    However, you also implied that their management is nimble enough to dance into some other higher-value service, like streaming movies to TV.

    That brings up a a multitude of unknowns. In this age, everyone has cable. What is the value of Netflix's streaming movies vs. cable vs the IPAD and Qualcomm's Flo TV?

    I can think of an advantage that made them America's favorite DVD movie vendor. Netflix can suggest movies that you might like from the cross-links in its database.

    NETFLIX STREAMING VIGNETTE: It's competitive advantage.

    You just got off work and feel as wound-up as a mechanical watch and want to see a movie to distract and refresh you. However, you don't know what new movie everyone in the family would want to see. If you click on each person's name, Netflix could give you a list of movies that everyone in the family would like . You could order the movie and have a family night together. No worries mate, you don't have to think about what one to get.

    Here's the question.

    How much is that quick and easy movie choice worth? Based on the prevalence of expensive but delicious microwave dinners. I imagine that peace in the house might be worth a lot. (This is especially true if you have a hot tempered 8-year-old who has strong preferences in his favorite TV & movie shows.

    The churn and flow statistics get to the heart of this advantage. If Netflix's churn is up, then the advantage of family peace wasn't worth the cost A high number for this would be like a leak in the subscriber base. With Netflix's subscriber acquisition cost, you could know the price of getting new subscribers to keep the base full and to increase it significantly.

  • Report this Comment On October 07, 2010, at 10:04 PM, Glycomix wrote:

    Whoa! Sorry about the jerky nature of that post. I need to make shorter posts so I can check to see if they flow.

  • Report this Comment On October 07, 2010, at 11:29 PM, ajaykc wrote:

    @@@@@isaquejr

    I totally agree with your comments. Apple might be a good investment for a short while but I don't see a huge upside. If you were already in then its time to get out of it. My 3 reasons for this call are:

    1. Everyone on wallstreet is bullish and you know what to do when wallstreet is bullish. Good examples are 2008 housing bubble, old tech bubble blah blah blah. Sometimes they seem more like paid puppets of Steve Jobs and like singing lady gaga songs for stupid reasons. Apple antena issue was buried by Wallstreet because wallstreet is heavily invested in this stock. That issue was real and still exists.

    2. Apple lead the smartphone market but they wont be able to hold the ground for forever. Android will give stiff competition with other strong and price competitive phone makers like Samsung, HTC, and LG. I had recently walked to T-mobile store and used Samsung Galaxy and I couldn't believe it. It is a wonderful phone which looks way better than iPhone and I am very sure MytouchG (HTC) and other phones from LG are killers too. Its just their marketing that will bring them forward. Apple will surely perform ok but their market share will be eroded soon. Don't under estimate Nokia which is hated by US consumers who are under water anyways. So, if US market is not going to grow then where would apple grow. In Europe? Europe is not any better than US as per wallstreet. China, Brazil, and India, those are value oriented markets. They don't make money in $$$ so they can't be buying Apple products hand over fist and if wallstreet thinks they will. They are totally wrong. Apple wont grow in Emerging markets much. That's my prediction. People in those countries don't go on shopping spree with credit cards. They either use debit cards or do most transactions in CASH. Do you know how much is $500 in emerging countries and how many days/months it takes to save that money?

    3. As like any other things, total money is conserved and its just changing hands. Nokia+ Microsoft loss = Apple gain. Next story...Samsung + LG + HTC + Nokia + Microsoft gain = Apple loss. If my understanding is corret, these companies are not sitting idle to go bankrupt.

  • Report this Comment On October 08, 2010, at 12:23 AM, jm7700229 wrote:

    Go ahead and hold Netflix at a p/e of 60. You might win. But you are placing value on ideas that haven't yet been thought of -- analogous to buying a big pharma because they might have the next Viagra.

    I remember as I was selling GE, which had gotten severely overweighted back in the late '90s, and several people said things along the lines of "you can't own too much GE." Fortunately, I went with "the basics" and didn't listen. I also dumped all my high flying techs before the crash and my financials (years) before the crash (I didn't then consider GE to be a financial).

    I don't think that taking a 100% gain is ever dumb, even if the stock continues to go up. And I don't, and will never, own anything with a p/e of 60. That kind of pricing reflects "irrational exuberance, not fundamental value.

  • Report this Comment On October 08, 2010, at 12:38 AM, TMFMoby wrote:

    Borbality, steveelcpo, and dillon53 - Thank you very much for your comments regarding hindsight being 20/20 and the "what if" game.

    I generally agree with your thinking, but the key point I want to share with you and other Fools is that I simply had no reason to sell my NFLX shares other than that the price doubled, and my nervousness as a result. I had no reason to sell Netflix other than the price change, and I didn't have a better stock to invest in, nor did I have any short-term need for my cash. It all went to a money market account and yielded paltry rates.

    So I didn't lose on Netflix, but I also didn't come anywhere close to a life-changing win. Those life-changing wins could do lots of things:

    1) total financial freedom - seed my own business

    2) earlier retirement

    3) clean up my bad investments...and then some

    I'm not sad about my Netflix story. I profited around $17k, and in the process I learned a better lesson than I could have learned in any college: sell stocks for GOOD reasons, not for irrelevant reasons, such as the price change.

    Fool on! - Jeremy

  • Report this Comment On October 08, 2010, at 12:47 AM, TMFMoby wrote:

    jm7700229 - If I were holding NFLX currently, I'd be betting almost entirely on Reed Hastings and his team.

    I'd be betting that they're going to find opportunities and value, and not get distracted by cool, but non-commercial side shows. These guys have strong focus. Check out my April 2009 article on it (look for the sub-heading about focus:)

    http://www.fool.com/investing/general/2009/04/21/how-netflix...

    These guys are all about the core business and natural (and profitable!) extensions of it. I believe that makes them very different from executives waiting on the lab guys to create the next Viagra.

    What do you think?

    JP

  • Report this Comment On October 08, 2010, at 12:47 AM, millsbob wrote:

    @ajaykc:

    what was Apple's main business 10 years ago?

    what was Apple's main business 5 years ago?

    what will AppleApple's main business be 5 years from now?

    hint: if you answered "phones" to any of the above, you're incorrect.

  • Report this Comment On October 08, 2010, at 2:47 AM, EllenBrandtPhD wrote:

    Many think CIM is safer, not less safe, than NLY.

    Dividend raise of over 6 percent presages a very good earnings report coming in a couple of weeks.

    But stock still has three of its nine major analysts at Hold. They are going to have to raise to Buy or better if earnings beat is significant.

    CIM is very well-liked among its major constituency of large institutions. Retail investors and small institutions still under-represented.

  • Report this Comment On October 08, 2010, at 3:35 AM, ChrisFs wrote:

    While the article is interesting, the title is misleading. Selling a stock will never 'destroy your portfolio', especially if you made a profit.

    Peter Lynch pointed out that it's faulty logic for people will be upset over a stock that they sold too early (or never bought), You didn't lose any money, if you did , then perusing the stock pages would cause you to both lose and gain millions of dollars at a time from the rises and falls of all the stocks you didn't own.

  • Report this Comment On October 08, 2010, at 5:56 AM, Aventador wrote:

    Totally agree with ChrisFs. You made a handsome profit and probably reinvested the resulting $31,875 elsewhere when you sold 100%. Furthermore hindsight is 20-20.

    If you have an investment that doubles within 3-5 years, which is rare enough when trying to minimise downside risk, just sell half and find a different investment for the original $ 17.000 and let the remaining position just ride.

    NFLX is overvalued at present, so probably a good time for investors to at least lock in some profits.

  • Report this Comment On October 08, 2010, at 7:24 AM, tomd728 wrote:

    Jeremy.........at what price did the boys advise to stop adding NFLX and when ?

    Now I beg your pardon but your piece sounds like

    an offering one might find on the Yahoo discussion boards.Where is it written that a near 100 % return on a trade is a matter for imputed grief ?

    Now I'm curious about where you put the proceeds of that trade.I know......wherever it went or whatever you bought has not produced the

    profit had you let the NFLX long stand.

    I'm not here to post up on why NFLX is a buy,sell,

    or hold. Me ? The action is avoid.I owned NFLX and departed when the stock got into the $150- $160 range and I did very well.If I see or suspect the next "event" I would not hesitate to re-enter

    if that news or revelation or whatever were positive and look for the next breakout.

    Thank you and good trading......

    Tom

  • Report this Comment On October 08, 2010, at 8:53 AM, nickolassc wrote:

    MikeCart1: How's that BP P.A.D. strategy been working for you?

    In regards to selling NFLX and missing out on some profit, I think you made the right call. Making a 100% profit and in 1 years time and taking your risk of the table is never the wrong call in my opinion, however, I would probably put in trailing stops or sell my initial investment value and let the rest ride if I were in a similar position.

    I would think about looking at NTWK or EBIX right now for the next possible NFLX

  • Report this Comment On October 08, 2010, at 9:14 AM, TMFMoby wrote:

    ChrisFs, thank you for commenting, and for being a Fool for over 10 years!

    You wrote:

    "Peter Lynch pointed out that it's faulty logic for people will be upset over a stock that they sold too early (or never bought)"

    From One Up on Wall Street (http://bit.ly/9yXSxJ):

    "The Fast Growers

    These are among my favorite investments: small, aggressive new enterprises that grow at 20 to 45 percent a year. If you choose wisely, this is the land of the 10- to 40-baggers, and even the 200-baggers. With a small portfolio, one or two of these can make a career."

    Holding winners is very much a Lynch philosophy, and one I now subscribe to. This doesn't mean that you should never sell a winner. There are plenty of great reasons: you want to buy a house, pay for college, or you see a better opportunity in another stock. But simply selling to sell, as I did, can set your portfolio back years.

    A mere double on a one of my holdings is no way to crush the S&P, which is my 40-year goal.

    Foolishly,

    Jeremy

  • Report this Comment On October 08, 2010, at 11:28 AM, pondee619 wrote:

    Notafoollku:

    No agenda? "David Gardner has been telling members of Stock Advisor and Rule Breakers for years. It's advice I wish I had heeded, as I'd be $100,000 richer today.

    From now on, I'm sticking with Dave. I suggest you do the same"

    The agenda is simple, buy a subscription..

    steveelcpo: YES!

    "Annaly Capital ManagementWhy not to sell..."

    "Sell Annaly if you believe ..."

    "Don't sell Sirius ..."

    "Sell Sirius if you believe ..."

    It is all too easy to say I would have made $100,000 if I had held on. Doing that is real time is much harder. So hard, in fact, that our writing fool can't/won't do it on his own handpicked stocks.

    But a subscription and shut up.

  • Report this Comment On October 08, 2010, at 11:56 AM, dillon53 wrote:

    Jeremy, et al, I am wondering if ATVI might be another NFLX-type chance for us. David G. still swears by this stock, ". . . by a long shot." I am comparing these two stocks somehow despite the difference in sectors and industries. I know this is irrelevant in terms of reason to buy more, but perhaps it's the price comparison with NFLX in 12/2004 and the entertainment business of both.

  • Report this Comment On October 08, 2010, at 6:52 PM, 1caflash wrote:

    Venerability knows my thoughts about Chimera. I have 10,400 shares in my large account, and 13,300 shares in my tax-deferred IRA. A Major Bank could buy 50,000 to 100,000 CIM shares, let Chimera pay that Bank the wonderful Yield, and take a portion of those proceeds and Lend It to worthy prospective car or home-buyers at 4% or more. Another part of the money could be used for usual expenses or to help pay down the Bank's Debt. I'm surprised we haven't heard about a firm doing this. Perhaps Pershing Square or Mr. Buffett will realize what a Golden Opportunity this can be.

  • Report this Comment On October 08, 2010, at 6:57 PM, 1caflash wrote:

    Correction: I meant the Major Bank could Buy 50,000,000 to 100,000,000 Chimera Shares. Forgive me.

  • Report this Comment On October 08, 2010, at 6:59 PM, BxBruce007 wrote:

    The article - interesting. The discussion - very interesting.

    The links to "more info" that turn out to be just long winded ads for Rule Breakers? Very, very, very annoying.

    I've been a Fool for a very long time but I am sick and tired of the continued hard sell from you guys. Don't tell us we're going to get information when all we're going to get is a tease and a pitch.

  • Report this Comment On October 08, 2010, at 7:09 PM, Borbality wrote:

    dillon53: I don't see how ATVI could ever bring in the kind of money to do anything close to resembling what NFLX has done. I really hope it does because I have some money in ATVI, but right now I'm just hoping for good Xmas numbers!

  • Report this Comment On October 08, 2010, at 7:15 PM, bzhayes wrote:

    "...it's the greatest investing lesson of my lifetime..."

    That seems like an awful lot of regret over a 100% return in 1 year. Plus I note that the Gardeners never recommended Netlfix north of $30/share. Selling at $45/share doesn't seem like something worth regretting to me.

    It seems to me you made an analysis, determined a stock was undervalue, and netted a hefty return. It sounds like a win in my book. My regrets are a rash, emotional move I have made without sound reasoning. The markets taught me a good lesson on that one. I remember thinking Ford will never go under when it was at the bottom. I could have made a nice return if I would have stuck my neck out. I don't regret because I had similar thoughts about Lehman Bros.

  • Report this Comment On October 11, 2010, at 10:34 PM, marc5477 wrote:

    Well I have to go a different way.

    Apple is a death trap. Sorry but their business is fickle and completely dependent on consumer opinion of "coolness." They do not provide superior products nor are their prices competitive. The minute the next cool thing rears its head, Apple will lose 50% of its value. There is a slim chance that they can keep it going for a while but right now they are at a peak. Any investment here is extremely risky and gains would be unrealistic.

    Netflix was a steal back in the day but at $100... the problem with Netflix is that their service is reproducible for only a few million dollars. They are not in a niche market nor do they have a technical advantage. They simply were position well at the start. What happens if Walmart makes their own service? What about Amazon? The only issues with starting streaming services like netflix is legalities. Once those are ironed out, it will be a matter of time before we see competitors everywhere. Netflix reminds me a lot of how AOL started. They were there at the cusp and capitalized on it but they slowly died as competition became fierce.

    Sirius is dependent on the outlook of mobile internet. If mobile internet gets really cheap and everyone has it on their phone, you can kiss Sirius goodbye. People are already using phone services for music and news so its just a matter of time. That said, they should do fine for a while but it is not a good long term investment. You need to monitor the consumer markets if you own this one.

  • Report this Comment On October 12, 2010, at 10:29 PM, bluesplash wrote:

    They did, marc5477, they did.

  • Report this Comment On October 12, 2010, at 10:37 PM, TMFMoby wrote:

    Hey marc5477 - I agree regarding Netflix looking like an early AOL, but I believe they're taking the right steps to avoid burning out in the same fashion.

    Check out my article from last year comparing the two: http://www.fool.com/investing/general/2009/04/21/how-netflix...

    I'd love to know your thoughts.

    Jeremy

  • Report this Comment On October 12, 2010, at 11:10 PM, TMFMoby wrote:

    dillon53 - I personally own ATVI, and when I had more time, I was an avid customer of theirs (primarily on the Blizzard side of the house.) Certainly, I hope it's the next Netflix. :) Of course, it's currently 2x the market cap of NFLX, for perspective.

    One difference is that ATVI is very international, with around 50% of net revenue coming from outside the US. Compare this to Netflix's almost entirely US-sourced revenue, only recently opening shop in Canada.

    What I like about ATVI is the stickiness of its intellectual property. Much like a Marvel, they have been able to reuse older IP for big sales. Namely, World of Warcraft and more recently the Starcraft sequel, which launched 12 years after the original. According to AVTI, it set a "record for fastest-selling strategy game of all time" when it sold 1 million copies in its first day. Pretty amazing.

    Of course, there’s always the concern that entire genres within their lose favor with consumers, as with Guitar Hero.

    I do like them much more than ERTS and TTWO.

    Foolishly,

    Jeremy

  • Report this Comment On October 14, 2010, at 12:13 AM, easyrob wrote:

    Good article.... I'd like to point out that when MF has good articles they have good comments like those above.

    When the Fool is pumping it's services they get poor comments like so many (the majority) i've seen when i follow links to this site. Keep up the good work ala this article and maybe i'll subcribe again.

  • Report this Comment On October 14, 2010, at 11:57 AM, iversonj88 wrote:

    Sigh. I read this article about a week ago and thought it sounded great. Then I slipped back into my habits and sold ZAGG two days ago, a company I've held for two years and have huge faith in, at 5.20 a share, a huge profit for me. I woke up and was almost sick today to see it opening 40% higher at 7.20 a share after revised earnings. Heed the advice!

  • Report this Comment On October 15, 2010, at 1:54 PM, GregTrocchia wrote:

    Jeremy,

    I too was going to chime in about the title of the article then read the discussion you had about this with some of the others commenting on your article. In light of this discussion, it seems to me that the true portfolio destroyer is not so much the decision to sell a single stock but the mindset of trying to minimize one's regret.

    This mindset causes one to want to sell a successful stock, merely because one has experienced success with it, in order to "lock in profits", missing out on potentially huge returns down the road.

    A complementary urge that I hadn't seen mentioned in this discussion is the failure to sell a stock which has poor prospects because doing so would be to acknowledge failure (and, thus, again expose the investor to regret about having bought the stock).

    The combination of these two really *is* a "portfolio destroyer" because the portfolio of such an investor becomes increasingly full of stocks with poor prospects because any successful stock is (prematurely) sold, while any loser is doggedly held in the usually vain attempt not to sell at a loss. Thus, perhaps, a more accurate (but less pithy, I admit) title would have been: "The urge to sell stocks like this can destroy your portfolio".

  • Report this Comment On October 15, 2010, at 2:35 PM, chrisa19 wrote:

    While the numbers are always critical, the emotional side shouldn't be totally ignored. I love Netflix as a service and a company, but last week I realized I was starting to worry about repeating my mistakes with AOL and Iomega - riding the stocks up far past my comfort level. It may be hard to monetize, but there is a definite value to a good night's sleep. I sold a major portion of my NFLX, kept some in case I'm wrong, sleep better and am still a happy customer.

    This is basically my realizing how true was an "investing tip" given me long ago by a friend's father who was a trainer at a jai lai fronton in Miami. "Whenever you think about placing a bet, always ask yourself whether you will kick yourself harder for not betting and watching the player win, or betting and watching him lose. Then bet to avoid the greater pain." In this case, my perceived pain at missing out on a higher NFLX rise became outweighed by me fear of a major loss.

    BTW - I don't see this as "locking in profits." I agree with Ken Fisher that as long as you are going to reinvest the gains somewhere else, you didn't lock in anything, you just changed your bet.

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