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My $3.5 Million Netflix Mistake

By Rick Munarriz – Oct 14, 2021 at 11:50AM

Key Points

  • I bought a broken IPO in 2002 of a company called Netflix. You've probably heard of it.
  • I sold 80% of my position a couple of months later for thousands of dollars. It's worth millions of dollars now.
  • Selling always feels right, and almost comes as a relief. The real pain follows when you sold too soon on a wealth-altering investment.

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Nineteen years ago I made the smartest investment of my life, followed a few months later by my dumbest decision.

My biggest investing success story also happens to be my biggest investing failure. It was 19 years ago -- to the day -- that I wrote about changing my tune on Netflix (NFLX -1.12%). I had gone from skeptic of the DVDs-by-mail rental platform after its springtime IPO earlier that year to a believer. I was a subscriber. I was a new investor. 

Anyone that read that piece and followed me into what was a broken IPO of an early stage disruptor is sitting pretty right now. The stock is roughly a 1,180-bagger in that time. That's not a typo.

I fared even better, having bought closer to the bottom a few days earlier. I picked up 500 shares for roughly $2,600. I would then make the wealth-altering mistake of selling most of my shares a few months later. Selling 80% of my Netflix stock at a modest gain felt pretty good at the time. I didn't realize that I would be leaving millions on the table as I walked away.

Person curled up on a sofa with a remote control pointed at a TV.

Image source: Getty Images.

Selling is the hardest part

The math is cruel. See, those 500 shares would be 7,000 shares today after a pair of stock splits over those 19 years. Selling all but 20% of that position is a story that gets uglier over time. When I initially wrote about my terrible decision back in 2015, it was a $505,845 mistake, as that was the value of the 80% stake that I thought I was so smart for unloading ages ago.

Revisiting my tale of woe seems to be like a running cab meter. The 80% stake I sold in early 2003 would be worth $802,179 in late 2016, $884,709 by March 2017, and $2.8 million last summer. It would top $3.5 million as of Wednesday's close. 

The good news would normally be that the other 20% is a pretty good consolation prize. Unfortunately, I didn't heed my own advice. I would go on to sell half of my remaining stake in 2016, taking out the pruning shares again in 2018 and 2020 until what is now just 2% of my original position. I was uncomfortable with how large my position was in a single stock at every juncture, when in reality it should've been a reminder of how my attempts at diversification with the proceeds only hurt my portfolio. The 98% of my initial stake that I no longer own would be worth more than $4.3 million right now.

Netflix remains my largest holding, and just that remaining 2% stake is worth more than most people earn in a year. I can appreciate that. It doesn't mean that every self-inflicted haircut doesn't hurt when I see what I could've done -- what I should've done -- with all of the hair that has fallen to the floor. 

We spend so much time making sure we don't make a mistake in the investments that we make that we seem to forget that the real challenge sometimes is when to sell stocks. Art appreciation has nothing on the art of appreciation. The initial relief you get when you sell any position -- winning or losing -- is transitory until you see the scoreboard months, years -- or, in my case -- 19 years later. 

"My portfolio isn't a one-trick pony," I wrote last year, but I should've let that thoroughbred run. That horse is still running.

Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

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