On July 17, investors in Netflix (NASDAQ:NFLX) stock got a shock as their shares plunged 11%. That’s when the streaming leader announced second-quarter results, which were, to put it mildly, disappointing.
Netflix stock added just 2.7 million new members during the reporting period, while it had hoped to add 5 million. Worse, the company lost U.S. subscribers for the first time since 2011.
All that comes as we’re learning that it’s losing some of its biggest shows, including Friends and The Office — and as competitors like Disney (NYSE:DIS), AT&T (NYSE:T) (HBO), and Comcast (NASDAQ:CMCSA) (NBCUniversal) are ramping up their streaming plans.
And, of course, the company keeps on burning billions in cash to fuel its own growth.
Still, that 11% NFLX stock price fall came as a surprise to many.
But here’s the thing: Netflix’s swoon points to two lessons from InvestorPlace Global Investment Strategist Eric Fry that every investor should keep in mind.
2 Lessons from NFLX Stock
No. 1: Stocks that you hold through good times and bad — especially if they pay a steadily rising dividend — are a critical part of any asset allocation strategy. Eric calls these core holdings Forever Stocks, and for many investors, Netflix is one of those stocks. In total, Eric says, these stocks should represent about 25% to 35% of your total portfolio.
And the best time to add to your Forever Stocks holdings, he says, is when disaster strikes.
“One of your major goals as an investor is to buy stocks for less than they are worth. Put another way, your goal is to buy bargains,” Eric says. “Remember, markets are rational most of the time. They price most stocks correctly most of the time. But when emotion levels go off the charts — like they are now when it comes to Netflix — emotion completely overwhelms reason. This, of course, means that if you can keep your head while others are losing theirs, you can buy assets at fire-sale prices.”
No. 2: While sudden plunges like Netflix’s can be shocks, you can survive them — and even thrive through them — if you prepare yourself correctly. In fact, Eric recommends investors always keep themselves “hedged” against the U.S. stock market just in case of events like what we saw with NFLX stock.
He calls these sorts of preparations “portfolio insurance.” And the time to buy insurance, he says, is before the next disaster strikes.
That’s why Eric has crafted the ultimate “be prepared” resource — Bear Market 2020: The Survival Blueprint. This 140-page book is chock-full of essential steps that every investor should take right now, before another member of their portfolio sends out a bummer report … and takes a dive.
While Eric’s book focuses on the macro-economy — and the possibility of a wrenching recession or bear market — the same tactics apply to the “micro” — that is, every investor’s individual portfolio.
We can never predict exactly when disaster will strike. That’s why we must prepare for it … before it’s too late.
You can find out how to get Eric’s book by clicking here.
Christopher Skokna is a senior managing editor at InvestorPlace, where he works closely with Eric Fry. Eric is a 30-year international finance expert, former hedge fund manager, and InvestorPlace’s resident expert on global investment trends. He founded his own investment management firm and served as a partner several others. In 2016, he won the Portfolios With Purpose stock-picking contest – Wall Street’s most prestigious investment competition – making him America’s Top Trader. With Fry’s Investment Report, Eric’s goal is to track the world’s biggest macroeconomic and geopolitical events – and help investors make big gains from those emerging opportunities. Click here to learn more.
