The long bet on Netflix paid off with eye-popping returns for investors who braved the volatility

As market volatility picks up, it’s a useful exercise to take a look back at stocks which rewarded investors over the long run for sticking through the tough times.

There aren’t too many companies over the last decade that are a better example of that than Netflix.

It started as a simple idea in the 1990’s to take on Blockbuster and other video rental stores: Monthly subscriptions to DVD rentals by mail. But a strong pivot to digital streaming, and then a remarkable and risky investment in content creation, has turned Netflix into one of the world’s preeminent media companies.

And you didn’t have to invest in the company right when it had its IPO to make Hollywood-style money.

Netflix was already a household name when it delivered its billionth DVD in February 2007. If you bought the stock then, you would have seen a compounded annual growth rate of 46 percent – more than 5 times the total return for the S&P 500 over the same period.

There were missteps along the way that investors had to slog through.

Qwikster debacle

In July 2011, Netflix split the legacy DVD mailing business from its streaming service. Customers saw the split as a price hike and Netflix shed subscribers: more than 800,000 in a quarter.

Instead of admitting a mistake, the company doubled down on the split and CEO Reed Hastings rebranded the DVD service ‘Qwikster.’ The criticism poured in from across Wall Street.

Hastings eventually apologized and reversed course, but it wasn’t in time to stop the bleeding. The stock lost more than 75 percent of its value by Christmas of that year.

But the fundamentals of the company were strong, with technology that consumers loved. If you bought $1000 of Netflix stock after the Qwikster debacle, it would be worth about $28,000 today.

And the big run-up in Netflix stock has been since it started producing its own original content. Mega hits like ‘Orange is the New Black’ and ‘House of Cards’ made the product a ‘must-have’ for many households across the country. Almost immediately, Netflix went from the way we stream movies to a competitor of HBO and other massive media conglomerates.

The company briefly became more valuable than Disney and Comcast earlier this year. That’s despite its 2017 revenue of $11 billion being just a fraction of the other powerhouses.

Of course, hindsight is 20/20. The stock is down more than 30 percent since its highs a few months ago and there are real questions about whether or not the company can continue growing at its current size (it currently streams content in 190 countries around the world).

But when the market falters, lessons learned from past investments in surging American companies can help you find the next opportunity.

What is today’s long bet?

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