Today, I’d like to talk a little bit about Netflix. In last week’s post, I wrote about how I liked the show Ozark and how that lead me to investigate and purchase shares of Bank OZK. My wife and I are watching Killing Eve on Netflix now and I’m looking forward to starting the new season of Lincoln Lawyer that was just released.
Great Idea?
I remember in the late 1990’s, I purchased a DVD player and it came with a coupon for a free 3 month trial of something called Netflix. I signed up, and went online with my dial-up modem, created an account and loaded up my queue. Netflix mailed me 4 DVDs, and kept them coming every time I sent one back. I became addicted to those red envelopes.
At some point, as I professed my love of Netflix’ services, I started to think about the company as a potential investment opportunity. I did some research. The company was far from profitable at the time, but the growth rates were outstanding. Others were catching on to the whole DVD by mail thing and leaving Blockbuster and their local DVD rental shops behind.
I bought a few shares.
And Then…
I won’t go through the play by play of the next 20 years, but there were big ups and big downs. For the most part I held on and today I have a pretty good stake in Netflix, and it is one of my biggest winners.
What Did I Learn?
A few years back, the streaming wars were heating up and lots of competition appeared – Hulu, Disney+, Apple+, Max… everyone was kicking off a new streaming platform to try and steal some of Netflix’ share of the streaming market. As my buddies and I discussed what we were watching, many were looking to other services to see some of the shows and movies we loved. Netflix had a ton of unique content – starting with shows like House of Cards, up to my favorite Ozark and beyond, but Netflix’ focus on original content meant we had to go elsewhere for some of our old favorites.
And Then…(Again)
I saw Shameless pop up on Netflix. It was a show I had always wanted to watch – I love William H. Macy – but since I cut the cord long ago and I won’t pay for TV (except for Netflix which my T-Mobile pays for, and Prime, which I get via my Amazon subscription) I wasn’t able to watch. And then, Netflix struck deals with Seinfeld and Sandler so I can watch their classics over and over. I just watched Owen Wilson, Ben Stiller and Vince Vaughn in Starsky and Hutch last week.
While Netflix still has lots of original content like Money Heist and Monsters, there is now a healthy dose of Better Call Saul, Midnight Run and other favorites of mine.
Stock Ownership
Stock ownership means taking our hard-earned money and investing it in a business with the expectation that that business will grow and that we’ll profit from our investment. Read more here.
It’s not a gamble (or shouldn’t be). We’re not putting our money on red and hoping for a lucky spin of the roulette wheel. It’s just as if we decided to buy a home and flip it, or open a McDonald’s franchise. We’re putting capital into a business. The great part of buying a stock is that there is already a business in place and people to run it. We get to sit back and watch (and criticize, if we like), and make money.
In order to achieve the make money part of this, we need to put some effort into the watch part. This includes reading articles published on our companies. It means skimming the annual report, and the quarterly earnings updates. It means analyzing the financials, or better yet, reading the summaries of very smart analysts who analyze this for us. Just make sure you read a few analyst summaries because you’ll get many conflicting opinions.
Watch and Learn
Another less precise but important way to monitor our investments is to use the products and services our companies produce. Go to the website, buy their product, try it out, visit their store…
Rich and I have coffee every Saturday morning at Starbucks. This is investment research. I check out the line at the drive through and hope to see a counter full of drinks going out to walk-ins and Doordash drivers.
I buy everything at Amazon and now am seeing some of my items delivered in a few hours.
I have an iPhone, a Mac, a MacBook, an iPad, and airPods. All research.
The great thing about investing in Netflix, Starbucks, Apple and Amazon is that you can do boots-on-the-ground research. Netflix has addressed our concern about content. My buddies and I can now get our dumb adolescent humor there without going to other services.
Wrap-Up
If we want to make money investing in individual companies, we need to do some research and reading. We also need to take some risk. Sometimes a great company isn’t a great business. We’ll be wrong sometimes.
But being able to use a company’s products and visit its stores will give us a unique perspective that other investors may not have.
A while back, I invested in a Chinese company called Tencent. At the time, I had a team in China and I had visited a few times. I noticed that the team used their phones for everything. One app to text friends, manage their finances, get a ride, order food and listen to music. This got me thinking (and reading) and I took a small stake in Tencent. I sold after a few months because what the hell do I know about Chinese tech companies. And once I stopped visiting, I no longer had any first hand research.
Peter Lynch writes about knowing what you own in his book One up on Wall Street. This is a must-read for any investor.
A business in which we invest is a lot more than financials and technical indicators. Let the computers deal with this. In my opinion, a company in which we invest should be a company that we’re interested in. This makes it more fun.
As a side note, I also own shares of cigarette-maker Altria (Ticker: MO). The only product of theirs I’m interested in is the 8.22% annual dividend. More on them in a future post.