Good article on NFLX

[Guest Bronco]

I think NFLX is a great short idea assuming the proper catalyst.  In other words, when is the timing of their renegotiation of contracts?  I would wait a month or two before such event and maybe buy some out of the money puts 3 months out. 

 

To me, the long dated options on this are so expensive.  And to outright short this you can get killed.

 

The business is great for now - $10 and you can get a movie mailed to you and a huge library of old movies.  I for those that think the streaming stuff is garbage, go make yourself a kid.  Then tell me how Dora and Barney are worthless (hint - you may get a 1/2 hour of free time).  For $10/month! 

 

So the current Netflix is awesome but we all know that monster competition and expensive renegotiations may be coming.  But I would wait for the latter to happen and buy the puts leading to such event.

 

Just my 2 cents and I have no position other than as a customer.

 

[bargainman]

http://tech.slashdot.org/story/11/01/19/1814237/Mail-Service-Costs-Netflix-20x-More-Than-Streaming?from=rss

 

I always hear about the argument that content is going to cost more, but rarely do people bring up the fact that their postage costs are going down.

[Guest HarryLong]

Now that the Netflix situation has played out a bit since the thread started, let's do an unemotional postmortem here about the lessons learned.

 

Try a thought experiment where you're running a fund, and a few guys running slices of the fund made the arguments previously enumerated to risk management and the Chief Investment Officer as they placed their trades. The P&L has come in, and they've gotten slaughtered, and what you really want to do, rather than place blame, is to foster organization learning to improve processes in the future.

 

You want to design some rules to make sure that the same debacle never occurs again. What kind of rules could you come up with that might prevent logical errors/capital loss in the future, while still allowing one to potentially short over-valued situations profitably in the future?

 

In other words, there are really 2 problems here. Anyone can make a rule which cuts out the netflix short, but then keeps one out of profitable future shorts. So we have a dual problem.

 

Ideas anyone?

[zippy1]

Harry, I don't have a position in NFLX, but it is good to see that your NFLX call is right. 

 

So is this another 1% position in your portfolio?

[Guest HarryLong]

What's absolutely wonderful about this thread (if you were a reader and not a participant) is that it shows almost exactly the type of conversations that occur between experienced older guys, aggressive young traders, and risk managers.

 

You literally could have taken this thread, had actors read it on a set, and gotten a feeling for exactly what occurs at mutual funds, hedge funds, and proprietary trading desks around the country.

 

You had all of the stock characters, all of the stock arguments, all of the stock responses, and all of the dysfunctional behaviors. We just played it out for an audience. And I pushed hard for a reason--I wanted you all to see the push back humans give you when you ask them to decrease risk (and of course, I wanted to help people to not lose any more money).

 

Of course, at a real firm, the head Portfolio Manager or the CIO, or the risk manager has the power to cut off the debate at a certain point (this whole thread in the real world may have been time compressed into 1-5 days at some firms, or 5-20 minutes in others) and make a decision--keep the position [wrong choice] close out a trade (you don't have to suffer cowboys gladly when you're in charge), etc.

 

I just love this thread, because it gives the gentle audience the very real tenor of what happens in the real world.

 

Cowboys can make any arguments they want, but responsibility to decrease risk in the face of objections from traders resides at the top and in policies/processes designed to counteract confirmation bias.

 

The trader/portfolio manager may be wrong, but the CIO and his risk officers are at fault if they don't take action, even in the face of objections. A brilliant consultant told me that problems which resist solving by groups in a democratic fashion can be seen as divergent problems--the very nature of the problem and the very structure of the human mind almost assures that the vast majority of people will not get the correct answer. What's the take-away? In other words, it doesn't matter if many people on this board (or many articulate cowboy traders at a trading desk, hedge fund, mutual fund, etc) thought I was wrong. What matters is the right answer--which comes from a deep understanding of human foibles and risk logic--not democracy.

[twacowfca]

What's absolutely wonderful about this thread (if you were a reader and not a participant) is that it shows almost exactly the type of conversations that occur between experienced older guys, aggressive young traders, and risk managers.

 

You literally could have taken this thread, had actors read it on a set, and gotten a feeling for exactly what occurs at mutual funds, hedge funds, and proprietary trading desks around the country.

 

You had all of the stock characters, all of the stock arguments, all of the stock responses, and all of the dysfunctional behaviors. We just played it out for an audience. And I pushed hard for a reason--I wanted you all to see the push back humans give you when you ask them to decrease risk (and of course, I wanted to help people to not lose any more money).

 

Of course, at a real firm, the head Portfolio Manager or the CIO, or the risk manager has the power to cut off the debate at a certain point (this whole thread in the real world may have been time compressed into 1-5 days at some firms, or 5-20 minutes in others) and make a decision--keep the position [wrong choice] close out a trade (you don't have to suffer cowboys gladly when you're in charge), etc.

 

I just love this thread, because it gives the gentle audience the very real tenor of what happens in the real world.

 

Cowboys can make any arguments they want, but responsibility to decrease risk in the face of objections from traders resides at the top and in policies/processes designed to counteract confirmation bias.

 

The trader/portfolio manager may be wrong, but the CIO and his risk officers are at fault if they don't take action, even in the face of objections. A brilliant consultant told me that problems which resist solving by groups in a democratic fashion can be seen as divergent problems--the very nature of the problem and the very structure of the human mind almost assures that the vast majority of people will not get the correct answer. What's the take-away? In other words, it doesn't matter if many people on this board (or many articulate cowboy traders at a trading desk, hedge fund, mutual fund, etc) thought I was wrong. What matters is the right answer--which comes from a deep understanding of human foibles and risk logic--not democracy.

 

Harry, you can sometimes be a royal pain in the posterior, but there is method to your madness.  Sometimes, when you stir the pot, a nice piece of meat, like above, floats to the top!

[Guest HarryLong]

Thanks  ;D

[Guest HarryLong]

At this point, it would be almost tempting to short NFLX myself  ;D

 

But, as we know:

 

I. The difference between an amateur trader and a professional trader is risk control.

II. The difference between an average pro and a great trader is patience.

III. The difference between a great trader and the world's best is timing.

 

If we're aiming for III, we should wait as long as it takes: days, weeks, months, decades.

[twacowfca]

At this point, it would be almost tempting to short NFLX myself  ;D

 

But, as we know:

 

I. The difference between an amateur trader and a professional trader is risk control.

II. The difference between an average pro and a great trader is patience.

III. The difference between a great trader and the world's best is timing.

 

If we're aiming for III, we should wait as long as it takes: days, weeks, months, decades.

 

 

As the poet said: "There is a tide in the affairs of men, which taken at the crest, leads to fortune.".  :)

[Guest HarryLong]

At this point, it would be almost tempting to short NFLX myself  ;D

 

But, as we know:

 

I. The difference between an amateur trader and a professional trader is risk control.

II. The difference between an average pro and a great trader is patience.

III. The difference between a great trader and the world's best is timing.

 

If we're aiming for III, we should wait as long as it takes: days, weeks, months, decades.

 

 

 

As the poet said: "There is a tide in the affairs of men, which taken at the crest, leads to fortune.".  :)

 

twacowfca, I like that one!  :D

[alpha231616967560]

I thought that this was pretty funny: http://www.barelkarsan.com/2011/04/value-in-growth-netflix.html

[Eric50]

lol, on a more serious note, here is a recent interview of Netflix CEO. I have to admit that I'm impressed with how fast their streaming service grew in Canada: they expect 1m customers this summer...

 

Eric

 

http://www.businessinsider.com/netflix-ceo-reed-hastings-interview-2011-4?op=1

[merkhet]

I love Netflix's CEO... I just wish I saw value in the shares so that I could let him manage a business with my money.

[Guest HarryLong]

At this point, it would be almost tempting to short NFLX myself  ;D

 

But, as we know:

 

I. The difference between an amateur trader and a professional trader is risk control.

II. The difference between an average pro and a great trader is patience.

III. The difference between a great trader and the world's best is timing.

 

If we're aiming for III, we should wait as long as it takes: days, weeks, months, decades.

 

 

 

As the poet said: "There is a tide in the affairs of men, which taken at the crest, leads to fortune.".  :)

 

twacowfca, I like that one!   :D

 

Maybe I will finally get my chance.....

[Guest HarryLong]

Has anyone decided to adopt risk control after the big continuation of the move up in Netflix?

 

I was wrong on Google, no question about it. I do try to take my lumps quickly. Has anyone who was short NFLX decided that risk control is a good idea after all?

[Guest HarryLong]

Has anyone decided to adopt risk control after the big continuation of the move up in Netflix?

 

I was wrong on Google, no question about it. I do try to take my lumps quickly. Has anyone who was short NFLX decided that risk control is a good idea after all?

 

Everyone who had so much conviction on the short side in this thread seems oddly silent on risk control. Maybe it's a good contrary indicator, and I should start to wait for a NFLX short trade  ;)

[Guest misterstockwell]

I am not a NFLX investor--I don't even really follow it. However, I am interested in how many people cancelled after the latest price increase. Anecdotally, a wide swath of friends and acquaintances have dropped streaming altogether(me included) or switched to lower tier, or even dropped Netflix completely. I am curious if this local experience was the same elsewhere.

[Liberty]

I am not a NFLX investor--I don't even really follow it. However, I am interested in how many people cancelled after the latest price increase. Anecdotally, a wide swath of friends and acquaintances have dropped streaming altogether(me included) or switched to lower tier, or even dropped Netflix completely. I am curious if this local experience was the same elsewhere.

 

Out of curiosity, why is something like 6-7 bucks per month that big of a deal? Isn't the value provided by Netflix much more than that? I've heard many people threaten to cancel because of it, but I'm having trouble understanding why.

 

I'm not a netflix subscriber, but if I was, the difference between 10 and 16$ for unlimited movies and TV series doesn't seem like that big a deal.

 

I'm sure Reeds bundled stream for free with the other subscriptions to help it catch on (a kind of risk free trial -- or as drugs dealers say, the first hit is free but once you're hooked...) and because there were no doubt higher margins in streaming than in shipping DVDs, but I never though that it would stay "free" forever, especially as more people use it and they start paying more for content. The recent price increase is big as a %, but the total amounts are still pretty small compared to the value provided (rent all those movies and TV series separately and see how much it costs).

[Eric50]

I still have my tiny put position in NFLX. I'm waiting for a catalyst to add more. I agree with Harry that the current silence from all the shorts might be a good contrary indicator.

 

Eric

[Guest misterstockwell]

 

Out of curiosity, why is something like 6-7 bucks per month that big of a deal? Isn't the value provided by Netflix much more than that? I've heard many people threaten to cancel because of it, but I'm having trouble understanding why.

 

I'm not a netflix subscriber, but if I was, the difference between 10 and 16$ for unlimited movies and TV series doesn't seem like that big a deal.

 

I'm sure Reeds bundled stream for free with the other subscriptions to help it catch on (a kind of risk free trial -- or as drugs dealers say, the first hit is free but once you're hooked...) and because there were no doubt higher margins in streaming than in shipping DVDs, but I never though that it would stay "free" forever, especially as more people use it and they start paying more for content. The recent price increase is big as a %, but the total amounts are still pretty small compared to the value provided (rent all those movies and TV series separately and see how much it costs).

 

Streaming quality sucks(stereo only, low resolution), and has outdated material, and we found that we almost never used it. I get Bluray discs only, and they already increased my 3-at-a-time from $17 to $23, and now I would be paying $27. Eliminating streaming takes me down to $19. I am ok with that. Until they can stream current content with 1080p quality and include the Dolby True-HD/DTS Master Audio sound, I am not really interested. I think, to many, streaming was something that was interesting when free, but not worth it to pay for. I got zero benefit from streaming, so it is worth exactly zero to me.

[Liberty]

Streaming quality sucks(stereo only, low resolution), and has outdated material, and we found that we almost never used it. I get Bluray discs only, and they already increased my 3-at-a-time from $17 to $23, and now I would be paying $27. Eliminating streaming takes me down to $19. I am ok with that. Until they can stream current content with 1080p quality and include the Dolby True-HD/DTS Master Audio sound, I am not really interested. I think, to many, streaming was something that was interesting when free, but not worth it to pay for. I got zero benefit from streaming, so it is worth exactly zero to me.

 

Thanks for sharing your experience. I think it probably depends a lot of how much you care about resolution/sound quality, and how much you've invested in a home theater setup. I know people who are the exact opposite and pretty much stream everything, and can't wait for the selection there to get better so they can drop DVDs altogether.

[Guest misterstockwell]

I guess we got the answer to whether others are dumping the service--YES, they are.

[ericd1]

Interesting...I dumped the mail service and kept the streaming. We get the current stuff locally and I mean local. Video store is about 1/2 mile away. No question in my mind revenues are going down based on the program changes.

[S2S]

A different perspective on the new pricing scheme:

 

http://blogs.hbr.org/cs/2011/08/why_im_happy_netflix_raised_it.html

[Liberty]

Down almost 20% today.

 

http://money.cnn.com/2011/09/15/technology/netflix/index.htm