For me, I should have punted Netflix sooner knowing that the signal/price was telling me that the data was going to get better. It wasn’t so I dug in. Mistake. Especially with the rest of media complex falling out of bed due to COVID. I thought I would get saved (upside limited) by the credit markets collapsing, but then the Fed came in last week and started buying HYG and that changed.
Now, I have to deal with a stock that is breaking out to ATHs, the data looks great, everyone thinks they are going to have a “blowout” quarter, three sell side upgrades in the last week.
What to do from here?
This Q and guide is going to be as good as it gets from a rate of change/fundamental perspective. I still expect rate of change to mean revert to the downside next 6-9 months. The company is still not producing any content, but the market couldn’t care less about Q3/Q4 right now. It is about positioning for survival tomorrow. So I get it.
In fact, a lot of “digital” companies appear to be pulling forward multiple years worth of demand in their current valuation. Is that the wrong call? Probably not. There is fundamental support.
But the question I am having a difficult time assessing, is ...
A) Will these stocks be higher 6-12 months from now? and
B) Will they be relative outperformers?
COVID impact makes answering those questions with any degree of confidence difficult. My sense is that a lot of these “digital” winners today, are winning because they are seeing PEAK acceleration in demand. So while demand is likely to be higher in absolute terms post-COVID, in ROC terms growth is probably slower… hence the question. “Is this as good as it gets?”.
Now… instead of getting caught up in the narrative and feeling sorry for myself. I am just doubling down on what the data framework is telling me… try to tune out the noise and stock price, and really make sure I understand where things are going to go, rather than where they are now.
“Stop Being Right. Make Money” is why having the macro and Keith’s signal process as a layover on the fundamental research works so well when risk managing ideas.