Netflix is one of the best performing stock in history. From its IPO date, its stock is up more than 25,000 times.
If you had invested $10,000 in Netflix on its IPO date, you will have $2.5 million today. Well, I certainly am not that lucky person!
However, I did speculate in its sock for a little more than two years and I have more than doubled my speculated money. What made me give up on Netflix being a lover of Netflix shows myself?
A few months ago, I read a book called Guru Investor. This book basically highlights the best money managers who beat the market and their stock-picking strategies. Along with other great performers, the list included Warren Buffett, Charlie Munger, Benjamin Gaharam, and Peter Lynch.
One common denominator on their strategy is the ratio of the Debt and Equity. I did not have to think twice that one of my darling stocks is speculation and not an investment. The next thing I remember was the sold notification on my inbox. I was relieved.
This Netflix speculation panned out pretty well for me. The market timing was quite right. I sold it after more than doubling my money and since I sold its stock, the stock price is falling. I got lucky, again!
Netflix has around $5 billion of equity and around $10 billion of long term debt. This seems way too much based on the market crushers.
I believe Netflix is a great business. But, the price tag for it is not. It is selling for 100 times its current earnings, with above the critical limit of long term debt.
I prefer a good night’s sleep over the risk of earning a high return. I prefer the safety of the principle. And at this point, I gave up on Netflix. And, you should too!