To a lot of traders out there, the climb back to the top by the popular video streaming company (the one with the white letters and red background) seems too good to be true. But investor and advisor Mark Matson recently appeared on Fox News and said that it’s a bad bet—even as it reaches new highs every day.
To understand the company’s success, it’s important to understand its failures as well. The company has been playing the long game for a while, and after building a giant customer base in the late 2000’s it suddenly altered its prices and membership model in 2011. To many off its customers the change was sudden, unexpected, and worst of all seemed greedy—to many members it amounted to a 50% price hike. The company lost customers, was badmouthed across the internet, and, of course, suffered a blow to its stock.
But the company didn’t flinch. It was counting on the excellence of its product—the same excellence that had made it so popular in the first place—to help it weather the storm. And that’s exactly what happened. The company figured out the magic formula for watch-on-demand, seeing that viewers wanted unrestricted online access to lots of content and they wanted to be able to binge watch entire seasons of a favorite show in a single night. This is such an attractive proposition that the company knew it was undercharging and that ultimately it could get away with the price hike. And that’s exactly what happened.
Three years later, the company has surpassed all of its competitors and remains the number one service in its niche. It’s also had a steady climb in stock price, reaching 389—14% above its 300 peak before the price change.
That’s a great pick, right?
He doesn’t deny that 14% is a nice return, and he doesn’t forecast any impending doom for the company. In fact, he expects it to keep rising. The reason he wouldn’t bet on the company is totally different: it’s that Mark Matson doesn’t bet.
Not on individual companies, at least.
Matson’s point on Fox news is that, over the same period since the company started its recovery, if an investor had invested widely across the S&P instead of “picking” the bullish company, they would have made a 60% return instead of just 14%.
To Mark Matson, long-term strategy is always the best strategy. The market overall is less volatile than an individual stock, it generally recovers from slumps, and often the returns are as good or better than picking a winning company.
In other words, Mark Matson has the same strategy as the company: play the long game.