With many of the largest tech stocks falling over 20% year-to-date, is now the time to invest? Has the market changed to where tech investing is a safe bet?
Topics covered include:
- What happened to Netflix
- What contributed to the astounding performance of large tech stocks since 2013
- How the largest contributors to overall stock market performance are always changing
- Why the largest tech companies could fall even more from today’s level
- What are the valuations and sentiment toward large tech stocks
- What is complexity economics and how does it influence technology
- How younger investors and fractional trading have influenced the stock market
- Why stock splits are less effective today in driving up share prices
Show Notes
Netflix stock plunges as subscribers quit by Julianne Pepitone and Aaron Smith—CNN Money
No, you did not see the Netflix mess coming by Robert Armstrong—Financial Times
FANMAG: Because FAANGs Are So Yesterday—Dimensional
Complexity and the Economy by W. Brian Arthur
Rising Risk of Stagflation by Chris Brightman—Research Affiliates
“Fractional Trading” by Zhi Da, Vivian W. Fang, and Wenwei Lin
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Transcript
Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today’s episode 385, it’s titled “Is It Time to Invest In Big Tech or Medium Tech Stocks?”
Netflix
In July 2011, Netflix announced it would charge separate prices for its DVDs by mail, and its streaming video plans. Its customers went ballistic. The stock crashed, falling to $9 in November 2011, from $42 in July 2011.
Netflix at the time had about 26 million subscribers; its subscriber count fell. But even at $9, that’s nine times higher than what Netflix stocks were selling for in 2003. Had you bought Netflix back in the early 2000s and held it through this 80% downturn in 2011 through 2021, where the stock in November 2021 was over $600, then it has collapsed again in April.
It’s now selling for $200 per share. Those are some huge moves when it comes to an individual stock.
I thought about buying Netflix stock in 2011. I felt that the streaming service, which I was a customer of, had promise, but I didn’t know what the correct valuation was, so I didn’t buy that individual stock. I went back to my Mint account to see what I had paid for my Netflix subscription over the years.
In July 2011, I was paying $12.71 because I had the DVD service and the streaming service. That fall, I dropped the DVD service, so my monthly payment was $7.99. It stayed that way until July 2016, when Netflix increased their prices to $9.99. In January 2018, I paid $10.99. $12.99 in May 2019. In January 2020, prices were raised again to $13.99. Then, in February 2022, the price got raised to $19.99. That got my attention.
Now, I searched through my emails, and apparently, according to Netflix, I upgraded to their premium package, where they’ll stream at 4k. I don’t remember doing it. I canceled Netflix on March 9th. Then on April 19th, Netflix announced that it had lost 200,000 subscribers in the first quarter. It missed its own projection to add 2.5 million customers.
These were projections they hadn’t made up. They were looking at the trends back in the fourth quarter. But it was a huge miss because they did implement a price increase in early 2022, and apparently, many households canceled. Netflix has 222 million paying households. That’s up from 26 million back in 2011. This stock has been a huge win if you’ve been a long-term holder.
In a letter to investors, Netflix said that they were testing password-sharing subscription models, that when Netflix was growing so quickly, reducing password sharing wasn’t a high priority. Now, in our household, we shared the Netflix password, because we’ve had Netflix since 2009 or so. We had different devices.
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