The Investing Lessons of a DVD Moron

There are days when I wonder how I've survived this long. Saturday -- the day I forgot how to use a DVD player -- was one of those days.

Go ahead and call me a moron. I sure felt like one. But after shrugging off my initial embarrassment, I realized something important. In my decade of investing in tech, my best ideas have always come from noticing subtle shifts in behavior. 

My DVD player ignorance, born of an increasing addiction to streaming video, fit patterns I'd seen before:

  • When I noticed my increasing intolerance for slow Internet access, I invested in Akamai (Nasdaq: AKAM  ) .
  • When I noticed that Web-accessible services were not only simpler for me to use but also better at keeping me productive, I invested in Google (Nasdaq: GOOG  ) .
  • When I noticed that my Mac could run Windows as reliably as my PC, I bought shares of Apple (Nasdaq: AAPL  ) .

Each stock has been a winner for me. Only my Google stake has lagged the market. If following behavioral shifts had served me so well in the past, why, I wondered, didn't I have a real-money position in Netflix (Nasdaq: NFLX  ) ?

Virtually every part of the DVD rental process annoyed me. First, Redbox's iPhone app wouldn't let me reserve the film I was looking for. Then, when I arrived at my local box, the film I wanted to rent was nowhere to be found. So I went to another kiosk 200 yards away, in front of the grocery store. There I was able to get the flick I wanted.

But getting the movie was only the beginning of my frustrations. I'd forgotten how to switch over to the proper TV input for the DVD player. A few minutes of thumb wrestling transported us to the DVD "channel" only to find a seemingly endless spool of previews and ads we weren't allowed to skip past.

By the time the movie was due to begin, both my wife and I wondered why I hadn't just clicked on pay-per-view. Streaming rocks. Renting? Not so much. And that's putting it politely.

Yet neither is Comcast (Nasdaq: CMCSA  ) impressive when it comes to delivering movies and TV shows on demand. We pay for the premium Xfinity service, and while it's orders of magnitude better than what DISH Network (Nasdaq: DISH  ) provided to us when we were still customers, the interface is frequently obtuse and selection no more than passable.

Which brings us back to Netflix, the only company in the movie delivery business that's built entirely around entertaining me on my terms. Only iTunes gets close, with related services such as Amazon.com's (Nasdaq: AMZN  ) Instant Video meriting an honorable mention for also trying to understand my tastes.

But it's Netflix more than any of the others that takes the necessary time to study my interests and give me what I want, when I want it, without ads or interruptions. In many ways, I think of it as the business Warren Buffett would own were he ever to try tech.

Netflix offers aspirin (i.e., simple, fairly priced streaming) for a headache I'd rather not suffer (i.e., driving to get a DVD and struggling to fiddle with a dated player). If only I'd figured this out years ago. I'd be a much richer investor.

The good news? History says the tectonic shifts caused by subtle changes in behavior tend to last far longer than we might otherwise believe. Look at Amazon.com. The e-tailer has been public for close to 14 years now, and it's nowhere close to exhausting the e-commerce opportunity it was built to take advantage of. I believe Netflix enjoys a similar runway, and I plan to be aboard when this flight taxis for its next take-off.

Let this article be your notice. I'll be opening a position in Netflix as soon as disclosure rules allow. Care to join me? Think I'm nuts? Please do me the favor of weighing in on DVDs versus streaming, the future of on-demand media, and Netflix's opportunity using the comments box below.

The Motley Fool recently introduced a free My Watchlist feature that allows users to stay ahead of the curve and receive up to date news on companies like Netflix, or any of its competitors. To get up-to-date Netflix news and analysis, add the company to your watchlist today.

Google Motley Fool Inside Value pick. Akamai and Google are Motley Fool Rule Breakers recommendations. Amazon.com, Apple, and Netflix are Motley Fool Stock Advisor selections. Motley Fool Options has recommended members create a bull call spread position in Apple. Motley Fool Alpha LLC has purchased Netflix puts. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Akamai, Apple, and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Apple and Google and has written Apple puts. The Fool is also on Twitter as @TheMotleyFool. Its disclosure policy needs a rest. Night.


Read/Post Comments (6) | Recommend This Article (12)

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 April 11, 2011, at 4:29 PM, colddish wrote:

    Smart move.

  • Report this Comment On April 11, 2011, at 5:19 PM, WAMPUS1 wrote:

    Good article, well stated and I totally agree with you.

  • Report this Comment On April 11, 2011, at 6:58 PM, EdytheColton wrote:

    enjoy watching netflix even with in moving down,expecting to go up again soon. Wish I had more money to put into it .

  • Report this Comment On April 11, 2011, at 7:21 PM, thinktwicemore wrote:

    The masses sometimes kill a great thing. Netflix came out with great service through a unique diruprive technology and over 22 million short-seller are destroying it.

  • Report this Comment On April 12, 2011, at 8:57 PM, BordLyron wrote:

    How can short sellers possibly destroy a company? They may be able to briefly affect stock price, but in the long run, if the company is sound, they (the shorts) are irrelevant. Think of them as creating a buying opportunity...

    Byron

  • Report this Comment On April 14, 2011, at 4:55 PM, stan8331 wrote:

    I think you're right. It's always tempting to look at a rapidly appreciating stock with a high P/E and think that you're too late to the game. In the vast majority of cases, that actually is the case. But occasionally, a company comes along with such powerful fundamentals that the normal rules don't apply. Netflix makes video easy and inexpensive for customers in a way nobody else even approaches.

    People look at Apple and Google's mountains of cash and think "these are great tech companies with vast resources, surely they can kill Netflix if they so choose". The flaw in that line of reasoning is it fails to recognize Netflix is a very tightly focused, far superior provider of video content that also has a massive lead in terms of its catalog of available content.

    It's never safe to become complacent in today's tech environment but at this point in time, I see zero dangerous competition for Netflix.

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