I am about to cover the final leg of my NFLX short, which I had in place for over one year. Are you one of the many who saw this coming? Did you expect a 75% drop in price since the peak on July 13, 2010? Many today say they did. For example, the tone on CNBC this morning? “It was inevitable.”
Really? See what CNBC’s Cramer said at the end of September, long after NFLX peaked in July:
Most of the people who today are saying that they expected this are lying…to themselves. They are not trying to pull the wool over your eyes; they have pulled the wool over their own. They extrapolated out for several more years the rise from $50 in January 2010 to $304 on July 2011. They envisioned what they would do with the proceeds of a sale in 2015 of their 100 or 1,000 shares when the price of NFLX reached $7,000. So, paying six times sales in July was as natural as breathing.
If you think it is easy being short a company like NFLX, then were you? An analyst as thorough as there is and an experienced short seller—Whitney Tilson—could not hack it. It seems he could not stand the day-after-day upward momentum in this stock, often in large chunks, and he covered his short earlier this year just a few months after writing an excellent piece on why NFLX was a great short.
I am beginning to firmly believe that contrarianism is something that one is born with or seriously conditioned for at a young age. To be a good short seller, one has to have contrarianism in their DNA or their brain needs to be wired a certain way early in life.
I have attached a chart of NFLX’s price movement. The numbers are staggering to me, it had a momentum all its own. If you were not short in this period but today believe the 75% drop was inevitable, try to imagine what it was like at the various inflection points in this chart before July 13, 2011.