5 Things I Learned on the Way to an 1,100% Return on Netflix Inc. Stock

NFLX Chart

This week's surge pushed my Netflix stock investment over an awesome milestone: the return passed 1,100%.

Or, to put it in Foolish lingo, "After Thursday's spiffy-pop , Netflix is a 12-bagger for me."

Sure, it's only a paper gain since I haven't sold any shares. And it could drop right back down in a few trading days. Still, the jump got me thinking about what went into this super return. So here are five things I learned through investing in this stock.

1. Think really long term

By the IRS' definition, long-term investing requires holding a stock "more than a year before you dispose of it." In my case it has been nearly seven years (and counting) with Netflix, and no disposing whatsoever.

The stock was trading at $31.93 per share when I made my first purchase on May 2, 2008. At that time revenue came exclusively from Netflix's 8 million DVD-by-mail subscribers. The company had also made its first step into Internet video by striking a deal with Microsoft to embed a limited streaming service into the Xbox 360 console.

I wish I could say I knew then Netflix would balloon into a $30 billion streaming juggernaut. But I didn't have a clue. As I remember it, I bought shares for two reasons: It was a Stock Advisor recommendation and I was a happy DVD subscriber myself.

2. Get to know the company

Over the next few years I listened to every quarterly conference call I could and I studied Netflix's business. I found it more interesting than the dozen or so other companies in my portfolio, which focused my attention.

NFLX Chart

NFLX data by YCharts .

Looking back, I think it's the fact that I didn't sell at these times that earned me the crazy returns that followed. Fellow Fool Morgan Housel put it like this : "Most of what matters as a long-term investor is how you behave during the 1% of the time everyone else is losing their cool."

To get this extraordinary return I had to hold Netflix for an unusually long time while enduring some painfully high volatility. That brings to mind this great quote from Charlie Munger: "The surest way to get what you want is to deserve what you want."

5. The math is on your side

When my Netflix investment hit a 100% gain, I can remember friends and family giving me the same prudent-sounding advice: "Sell half."

The impulse makes sense. You've doubled your investment, so why not cash out that gain and let the rest, the "house money," ride. Looking at it this way builds in a math-based tendency to sell that grows as a stock price increases.

Here's some math that points to the opposite conclusion. For every doubling of a stock price, the next double gets easier:

After 100% After 200% After 300% After 400% After 500% After 1000%
Percent gain needed for next doubling 50% 33% 25% 20% 17% 10%

At current prices, it would take a rise of just 8% to make Netflix a 13-bagger in my portfolio. That's useful to keep in mind when I'm tempted to sell the stock just because the price has gone up.

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The article 5 Things I Learned on the Way to an 1,100% Return on Netflix Inc. Stock originally appeared on

Demitrios Kalogeropoulos owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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