Jul 182016
 

Advantage of Long Term Thinking

There’s an advantage in the business world for thinking long term. If a company only makes short term goals then it will be forced to compete with many other businesses in the same industry. It doesn’t take a lot of foresight or planning to run a company for 1 or 2 years, so that’s what a lot of other competitors will do. But if a company is willing to invest in a longer period of time, such as 5 to 10 years, then it will gain a competitive edge because there are fewer companies that set those kinds of lofty goals. 🙂

For example McDonald’s owns the real estate of its fast food restaurants. Leasing might be cheaper in the beginning, but owning property directly is more profitable in the long run.

New video games that take a long time to create, such as the Grand Theft Auto franchise or The Elder Scrolls series are typically released once every 5 years or so. Not many game studios spend 5 years developing a single product so these types of games will often have less competition in their genre, and receive more favorable critic and user reviews due to their quality than other franchises which have a much shorter development cycle, such as Call of Duty.

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Netflix would have higher earnings if it focuses more on near term profit and not spend so much cash on creating new original content. But from a long term perspective its executives have decided that investing in additional content with more market penetration is better for shareholders in the long run, because there’s not a lot of other streaming services with that level of long term dedication to their brand. But Amazon.com is another company that thinks long term.

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Jan 212016
 

Netflix

I like to maintain an active lifestyle. So in 2014 I invited the popular online streaming service, Netflix, into my home because I wanted to do a marathon. After all, watching TV burns 70 calories per hour.

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Then earlier this week I welcomed Netflix (NFLX) into my stock portfolio. 😀

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The price of oil is falling, the global economy is slowing, many countries are in recession, and company earnings aren’t growing. But none of the gloomy financial and economic news in the world today have a negative impact on the the business of Netflix. 😀

However, this is somewhat of a contrarian play. NFLX has a price to earnings ratio of over 300 so it’s not a value stock. It also doesn’t pay a dividend so everything depends on the future appreciation of the stock price. Am I bullish on Netflix? Nope. ? But I decided to buy some shares anyway as an insurance against global cord-cutting.

Cover all the bases

I believe that media and entertainment will always be a strong industry. It’s hard to figure out which media conglomerates will expand their market share in the long run so my investment strategy is to diversify and own all of the big companies. This way, I don’t have to choose potential winners and losers because I’ll profit from the entire sector. 😉 A few years ago I blogged about doing the same thing for the coffee industry where I invest in large franchises such as Starbucks and McDonald’s. As it turns out all my coffee stocks have gained over 100% in value since I bought them! I’m using the same reasoning again now. Some people watch HBO while others prefer Netflix. I don’t know which service will have more viewers 10 years from now, but if I invest in the entire sector then I should be covered. 🙂 With the addition of NFLX, my basket of media and entertainment stocks now feels complete.

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