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My $802,179 Netflix Mistake

I sold 90% of my original position in the disruptive video giant way too soon. When you find a growth stock early in its cycle of redefining the market, you hold on.

It’s been a year and a half since I shared with you my bittersweet tale about about the one that mostly got away. I was one of the early Netflix (NASDAQ:NFLX) investors, only to quickly dump most of my position in the freshly public upstart that would go on to revolutionize the way that we consume video content.

I didn’t think that I would revisit this story, but with Netflix stock going on to become the biggest gainer in the S&P 500 last year — and now trading nicely higher in 2016 after last week’s blowout quarter — my story’s carnage has intensified. What was a $505,845 blunder early last year has now ballooned into an $802,179 mistake.

Party like it’s 2002

Let’s go back 14 years to when Netflix went public. I was skeptical at the time, bashing the business model and the stock. Renting out DVDs by shipping them out of its California distribution center seemed like a lousy proposition, with weeklong roundtrip delivery cycles for those of us on the East Coast. The stock went on to tank after the initial buzz, and that’s when I decided to kick the tires as a subscriber — and more importantly as an investor.

Netflix was aggressively building out its network of regional DVD distribution centers, speeding up the gap between disc-enclosed mailers from as long as a week to as little as two days. I went from being arguably Netflix’s biggest critic to being its biggest fan, and with the IPO falling out of favor I was able to pick up 500 shares for less than $2,600 in October 2002. I had finally nailed the bottom on a stock, and I wrote about changing my tune on Netflix shortly after that. Anyone heeding the call in that bullish article would be sitting on a 240-bagger.

I could’ve been doing even better than that. Netflix declared a 2-for-1 stock split two years later, followed by a 7-for-1 split last year. The 500 shares at a cost basis of $5.18 would be 7,000 shares at a cost basis of $0.37 — if only I had held onto them. I would go on to sell most of my shares well before the 2004 split. Ouch.

The waiting is the hardest part

I’ve learned the hard way that patience matters when it comes to investing. Netflix began to move higher as the mail-based platform took off, and I sold 80% of my stake in 2003. I got trigger-happy. I should’ve let the greed consume me instead.

The 100 shares I retained became 200 shares after the split in 2004, but a few years after that I sold half of my position. The stock was a big winner at that point, but this was before Netflix’s streaming platform became an international darling and Netflix became the S&P 500’s biggest gainer in 2013 and 2015.

One can argue that I shouldn’t complain. I still own 10% of my original position, and those 50 shares are now 700 shares at a cost basis of $0.37 apiece. If I ever need to tell the story of my biggest winner I can point to my 300-bagger. However, the split-adjusted 6,300 shares that I sold too soon would be worth $802,179 as of Monday’s close. “That obviously would’ve gone a long way toward retirement, dreaming, or giving my kids one less reason to be resentful,” I wrote last year, and the sum only grows as Netflix continues to dominate and redefine the market.

I would like to think that it was a costly but important lesson. When you find a disruptive growth stock early in the market-rattling process, you hold on and see it through. Let my loss be your gain. It’s the least that I can do.

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Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.

 

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.