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Oppty: Netflix on Sale? Catch a Falling Knife?

As of this writing, NFLX is down 10.27% from yesterdays close of business. Most investors' first reaction is to figure out why and then construct a thesis as to whether it should be purchased (if not currently owned) or sold (if owned) to prevent any further damage to the overall portfolio or simply the brokerage account it is being held.

This might sound logical and prudent given the significant drop in Price BUT let’s not do what most investors do. Why not? Because MOST investors lose money when approaching the markets and that has remained true since before dirt was invented. Another way to think about it, is that the more skillful players (professionals, e.g., hedge fund manager) typically buy at wholesale and sell at retail to the less savvy investors (non-professional, e.g., joe the plumber). That said, which operator would you rather follow into a particular investment?

Maybe that last question was a bit rhetorical in nature. At the very least, it should help you realize that investing is no different than any other endeavor in life, which is to say it requires skill. And to ignore this truth is equivalent to walking down the street with cash hanging out of your pockets, then wondering later on, why it's gone.

Easier said than done, right? Absolutely, but we still have options to better ourselves and they start by asking simple questions. For example, what do we know for certain? If we look at the below chart, we can clearly see that NFLX was trending higher from Jan 2017 to roughly late June 2018. It was at this point where Price stopped that behavior and began to shed some investors over the next 6 months. We can also say with clarity that investors became very interested in buying at the 230ish level toward the close of 2018 and the beginning of 2019 based solely on the fact that the stock went higher.

Now, with just those few pieces of information that we observed from looking at a simple Price chart, let’s put it all together and try to align our decision making with the Warren Buffett's of the world. Focusing on the next chart below, if you buy this morning you will be getting a discount of roughly 10% from yesterday’s action. And it may move higher from there and never look back BUT if you want to invest where the professionals would be willing to risk capital than you would need to wait until at least 270ish.


WHY? Because that's exactly where the "smart money" was willing to buy it last time and we can see that without having to examine the news, balance sheets, subscriber growth, P/E ratios or some other subjective data point no one can agree on with any degree of certainty. Does that make sense?

Additionally, we can benefit from isolating Price behavior on a chart because it enables a way to manage the risk of our investment which is virtually impossible when we only utilize fundamental analysis. Was that helpful?

There is so much more to see on a chart like this and many more bits of information we can observe to make more sound decisions as investors -- Want to learn more? See more? Let's have a quick chat or sign up today... https://www.principles1.com/plans-pricing

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