Prior to joining Alhambra Investment Partners, I sold my remaining Netflix (NFLX) shares at $248 a share. I guess I should preface this note by saying that I have been NFLX subscriber since 2004 and I love the service. I have no personal vendetta against the company or it’s management, but after spending the weekend catching up on reading about Steve Jobs and his management style, I just felt the need to share this with you.
I bought the shares at an all-time high, around $56 a share, purely based on momentum:
What Does Momentum Investing Mean?
An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
Investopedia explains Momentum Investing
This strategy looks to capture gains by riding ”hot” stocks and selling “cold” ones. To participate in momentum investing, a trader will take a long position in an asset, which has shown an upward trending price, or short sell a security that has been in a downtrend. The basic idea is that once a trend is established, it is more likely to continue in that direction than to move against the trend.
This strategy looks to capture gains by riding ”hot” stocks and selling “cold” ones. To participate in momentum investing, a trader will take a long position in an asset, which has shown an upward trending price, or short sell a security that has been in a downtrend. The basic idea is that once a trend is established, it is more likely to continue in that direction than to move against the trend.
For well over a year, the shares proceeded to march higher. Now that I was a shareholder, I began to stay on top of the Netflix story, it’s earnings reports and general developments. And then I came across a very startling observation: the CEO, Reed Hastings, didn’t own any shares himself? I found it impossible to believe. I poured over SEC filing after SEC filing and there it was in black in white; nothing but sales coming from Mr. Hastings and his top officers. As far as I’m concerned, there’s just something morally wrong with this.
As soon as my investment doubled, I sold half of my shares and pocketed my original investment. The remaining half eventually rose over 400% before I sold them at $248/share. Since then, Mr. Hastings shell shocked customers with an almost 60% increase in monthly rates, announced that they were splitting the company in to two parts only to retract the statements a few days later. This is very eratic behavior for someone who, until recently, appeared to be flawless. Netflix could do no wrong and Mr. Hastings appears to have lost his way of late. Looking at his record of stock ownership, I’d say I’m not surprised.
On October 10th, 2011,
posted in: Markets by Marcelo Perez Tags: apple, insider selling, Momentum Investing, Netflix, Steve Jobs
Stephen
October 11, 2011 at 9:46 amColumn is well written but seems incomplete. It appears that NFLX was bought based on momentum investing but sold for fundamental reasons. What is the point of this story?
Joseph A. Gomez
October 11, 2011 at 11:57 amThanks for your comment, Steve. Actually, it was sold for technical reasons as it violated a trailing stop-loss, but I was extra-vigilent. It was easy letting go of it. Often, the collective wisdom of investors is worth paying attention to.
Good Luck, and thanks for visiting.