Pull up a stool, and let me tell you a bittersweet tale about the one that mostly got away. It was 2002, and I finally got Netflix NETFLIX INC. NFLX -1.22% . I was skeptical when it went public in May of that year. I bashed it — viciously — a few weeks later, but my tune changed a few months later when I became a subscriber and an investor.
Netflix was starting to build out its network of distribution centers, and that means that the laughable weeklong roundtrip delivery cycle for someone on the East Coast between disc rentals could be shortened to as little as two days.
It also didn’t hurt that the same stock that I blasted when it was in the high teens in June had fallen into the mid-single digits by October. I bought in, wagering roughly $2,500 to pick up 500 shares. For once in my life I had actually nailed the bottom on a stock.
By the time that Netflix declared a 2-for-1 stock split two years later, my cost basis on what would have been 1,000 shares dropped to about $2.50 a share. The key nugget in that lesson is “would have been” because I had unfortunately sold most of my shares well before the split.
Identifying great growth stocks is sometimes easier than mustering the patience to see that greatness play out. In my case, I got trigger happy when Netflix began to bounce back. I sold 80% of my stake too soon. It felt right at the time. It always does.
The only thing that makes this tale bearable is that I kept 100 of my original 500 shares. It didn’t seem right to punch out entirely, especially when Netflix was disrupting what was then a thriving DVD rentals market. Those 100 shares became 200 after the stock split in 2004.
However, I sold half of my remaining shares a few years later. Netflix was the biggest winner in my portfolio, but I wanted to raise some money to join a luxury destination club. That was another bad call, of course. The vacation club I went on to join would go on to file for bankruptcy, but seeing that get wiped out was no match for the regret that I have for cashing out in the first place.
One can argue that I shouldn’t complain. I still have 100 shares at a cost basis of $2.50. Some folks are lucky to see a 10-bagger or a 20-bagger in their investing tenures, and here I am as the proud owner of a 200-bagger following Thursday’s pop.
It’s hard to be resentful in knowing that I turned $250 — a tenth of my initial $2,500 investment — into more than the average person makes in a year. However, I can’t lie and say that there isn’t a bittersweet twinge whenever my stock moves higher the way it did on Thursday afteranother blowout quarter. The split-adjusted 900 shares that I sold along the way would be worth $505,845 as of Thursday’s close, and that obviously would’ve gone a long way toward retirement, dreaming, or giving my kids one less reason to be resentful. Read more…