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If I Only Bought Netflix a Decade Ago


Here’s a fun thought experiment. Suppose you had $15,000 to invest evenly in fifteen different companies back before the Great Recession. Then you let it ride through the market’s downturn, holding your investment instead of selling anything. How much would you have today?

Here is the answer:

 

net.PNG


Financial website How Much, took a look at some popular stocks in 2007 to find out how much a $1,000 investment in each would be worth now. It estimates a $1,000 investment in Netflix in 2007 would be worth $51,966 as of October 31 of this year, or more than 50 times as much.

This is a fun exercise, and you might ask yourself: if I had $100,000 10 years ago and put them into NFLX stock, I would have over five million dollars today. 

However, this is hindsight. NFLX was pretty much a startup 10 years ago. Would you be comfortable to put a significant amount of money into one startup company? And hold it through all drawdowns (NFLX had plenty, some of them as high as 30-40%)? For each Netflix, there are hundreds of startups that went out of business. Is it really risk you are willing to take?

Here is an excellent argument from Ryan Vlastelica, MarketWatch reporter:

 

Quote

This was in the fall of 2007. I was fresh out of college and had just started at my first full-time job, and I had the idea to save up $5,000 and invest it. My stock of choice was Netflix Inc.

To my surprise, my dad strongly cautioned me against it, and convincingly enough that I took his advice and bought some very boring index funds instead.

My dad and I, we’re still close.

His argument had been simple: investing in single stocks is risky even if you’ve done your due diligence, so it’s better to diffuse that risk by investing in the broader market, which is almost guaranteed to go up over time (especially over my timeline of a then-21-year-old kickstarting a nest egg).

Ultimately it’s better to be talked out of a good investment than talked into a bad one, which means I view this missed opportunity as more of a “what if” scenario than a decision that put me on the path to ruin. And so, while I’m reluctant to admit this in print, where it can be easily pulled out at the next family reunion, it should be said: my dad was wrong, but he was also correct.

 
The investing insanity of trying to find the next Amazon has more to say about the same subject:

 

Quote

 

People waste way too much time looking for the next Amazon, but I get it, it’s part of what makes investing exciting. So if you’re going to search for a potentially life-changing investment, here are a few things to consider:
 

  • A lot of people spend their life looking for the next Amazon. Few people ever find it.
     
  • Sticking to a boring 60/40 portfolio is hard enough. Focus on getting the big things right.
     
  • If you can’t help yourself, limit yourself to a few speculative ideas a year. Two or three sounds about right.
     
  • Keep the amount you wager small. No more than 1% or 2% of your portfolio.
     
  • Earning 100% on a stock can be an emotional roller coaster. Earning 10,000% can lead to a lot of sleepless nights.
     
  • Let’s say you do find a unicorn; as the dollar amount you have invested grows, you become much more sensitive to drawdowns.
     
  • Just because you take big risks does not mean you’re entitled to big rewards.

 


Excellent advice. Please remember it next time you feel sorry for not investing in Netflix, Amazon or another hot name.

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