I am the last person who should be giving financial advice.
The list of financial blunders I’ve made in my life is long. I’m a responsible person and I clean up my messes but along the way I’ve made stupid investments, accrued bad debts at outrageous interest, and made career moves that were never financially smart (although I don’t regret any of them).
At times when my income has been steady, I’ve been a consistent and substantial saver, enough that I was able to buy my second new car (a 2000 Volkswagen New Beetle) with cash.
But I’ve spent more than half of my post-college working life as a freelancer and, as any freelancer will tell you, that is not the path to a steady income.
My investment history
As far as investing goes, my very first investment way back in the 1980s was $100 in an IRA. The money went into a mutual fund recommended by a financial advisor who I now recognize was probably not very experienced or astute. The fund was a well-established fund; still, my $100 pretty much evaporated over the next couple of years.
In the 1990s I worked for a division of a big corporation that offered a number of ways to invest through payroll deductions and I took advantage of that. I bought U.S. Savings Bonds, which at the time were not huge interest earners but they were super-safe and predictable. I also set up a 401K and regularly contributed to that. By the time I left that job after 5 years (when I was fully vested), I was able to take the approximately $50,000 I had in the 401K and roll it over into an IRA account.
Around this time online brokerages were becoming popular. I set up my IRA account with Charles Schwab with the 401K rollover money and tried to add a little more whenever I could. I wasn’t trying to be a day-trader. I just wanted to buy a few stocks or mutual funds and I didn’t think the amount of money I had to invest would be enough for a bona fide financial advisor to want to bother with. I was also a little too intimidated to go looking for a financial advisor.
I really didn’t know how to evaluate all the information that is available for investors to read before buying stocks. It was mostly Greek to me. I read Money magazine and did a little online research, but mostly I bought stock in the companies that I was personally familiar with as a customer — companies like Starbucks, for example.
I didn’t buy very many stocks and I can’t even remember which other ones I bought. I don’t remember them because, for the most part, they didn’t do all that well and eventually I ended up selling them. There was just one that I held on to and that’s what this article is all about.
I’m not typically an early adopter of technology — far from it, in fact. I tend to wait until a new technology settles down and the bugs are worked out before I want to lay out any of my hard-earned money for it. But Netflix was different.
Netflix started in 1997 in the U.S. but didn’t begin its monthly subscription service until 1999. At that time it was strictly a DVD operation. For a monthly fee, you could rent a fixed number of DVDs that were delivered via the U.S. Postal Service to your mailbox and could be returned the same way. There was no waiting in line at a video store and no worrying about returning it by a deadline — and thus, no late fees. You could keep a DVD for as long as you wanted and watch it at your convenience. As a customer, those were all big selling points.
For me, the biggest selling point for Netflix was its huge DVD catalog. At the local Blockbuster store, I might find dozens of copies of big Hollywood hits that I mostly had no interest in but few to none of the indie films I wanted to see. Netflix, on the other hand, had a much more eclectic collection that really suited my tastes.
The ease of renting and returning and the viewing choices quickly made me a devoted Netflix customer. I talked several friends into subscribing and was constantly singing its praises.
Then in May 2002, Netflix went public and soon my financial future would take a step toward a slow but dramatic change.
The Netflix initial public offering was initiated on May 29, 2002, with share prices at $15. I would have been happy to buy shares at that price. The only problem is that IPOs are not open to everyone. Still, there were 5.5 million shares sold at that IPO price.
Later in the year, however, the stock price started to tumble. I made my move when the price reached $9/share and I purchased 100 shares.
And then the price fell even more. By October of that year, the stock reached a low point of $4.85. I wasn’t worried. I was extremely confident that Netflix was a good company and that I’d made a solid investment. Why? Because I was a very satisfied customer. Everyone I knew who subscribed to Netflix was a satisfied customer. And at that point, they had no competition for the type of service they were offering.
So I did what investment advisors often say is what you should do with stocks: I bought it and held it.
I held onto it, even when, years later, a friend advised that I should probably sell it because the future was really in streaming, not DVDs. That made sense and I began to consider selling. Before I did, though, I happened to catch an interview with the Netflix CEO, Reed Hastings, where he explained that Netflix wasn’t in the DVD business, it was in the entertainment delivery business. DVDs were what made sense at that time, he said, but as technology developed they would move away from DVDs and towards other delivery models.
With that information, I was no longer worried that I’d become a stockholder in an obsolete business, so I kept my 100 shares.
Then on February 12, 2004, Netflix did a 2-for-1 stock split so I ended up with 200 shares. When the market closed that day, Netflix stock was selling at $37.30 so my initial $900 investment had grown to $7460 in less than two years.
Around 2009–2010 I found a financial advisor I liked and trusted and transferred my Schwab account to him. He liked the story of my Netflix investment, which was still performing well. But he noted that my portfolio was unbalanced and suggested that I might want to sell some of my Netflix stock in order to diversify more.
His suggestion made sense but I held on. For a while, anyway. Over the next few years, I did sell off a few shares, recouping far more than my initial $900 investment, but leaving me with 77 shares. Netflix went through some ups and downs as it expanded its services, grew subscriptions, and moved into streaming technology.
But I held on.
Then, in 2015, something really amazing happened. On July 15 of that year, Netflix initiated a 7-for-1 stock split. Suddenly, I was holding onto 539 shares at a price of $98.13/share for a total value of $52,892.07. I never imagined my investment could grow to anything close to that amount. But that was nothing compared to what was to come.
Where Netflix and I stand today
Today that stock price is way in the rearview mirror. Today, Netflix stock is selling for a whopping $491.36/share and my total Netflix investment is valued at more than $264,000.
It is insane to me that my relatively small investment could grow to this in 18 years. And while, as with any investment, luck certainly plays a part in whatever the outcome is, there are lessons to be learned from this that anyone can put into action for themselves.
1. Invest in a company that you know first-hand to be a well-run business with satisfied customers.
I don’t think I would have been as inclined to hold onto my Netflix stock through all the ups and downs if it weren’t for the fact that I was and remain today an extremely happy customer. Sure, I did research and continue to read anything I come across regarding Netflix’s business but I firmly believe that first-hand experience with a company matters as much as research.
2. Look for a company that has little to no competition.
Any business can make real strides and more easily survive mistakes and downturns when they don’t have serious competitors nipping at their heels. If you can invest during that early stage, you’ll be in a better position to understand how well the company is positioned to survive as the market becomes more crowded.
3. Buy with the intention of holding but know what your selling point is.
“Buy and hold” is a common mantra among investment advisors and it often makes sense. But it’s also good to not get sentimental about a stock, especially one you’ve held onto for a long time. Decide at what price you’d consider selling and keep re-evaluating. It’s an investment, not a marriage. It doesn’t have to last forever.