March 2020 was one of the worst y ears ever in the history of the stock market.
Some stocks plunged by over 50 percent over the course of a few days.
The panic that shocked the world made the future look so gloomy that investors didn’t
know what to expect.
And that’s the worst thing that could happen to the stock market.
When investors expect the market to crash, they start pulling out their money which will
lower demand and crash the market even further.
That’s why investors’ expectations are so important.
However, the companies that suffered the least from the crash were streaming services which
are headed by Netflix.
The pandemic means that people are going to stay at home which means the demand for shows
will significantly rise, that’s why Netflix's stock has experienced some of the best years
in its history.
The stock almost doubled over the course of 2 years since the pandemic started.
I mean, doubling your money in 2 years in the stock market is remarkable, especially
since it’s not like a startup but literally the leader in its industry!
But the honeymoon came to end by the end of 2021 when the stock first plunged by 40 percent
and then by another 46 percent in march 2022.
The crash was so catastrophic that some of the biggest investors such as Bill Ackman
sold their entire Netflix portfolios worth hundreds of millions of dollars.
But it’s not surprising that the stock plunged so significantly.
Every time a tech company suddenly starts losing subscribers, investors panic, imagining
that the company has reached its full potential and has no room to grow, and since investors
primarily make money by buying and selling high and don’t rely on dividends since they
don’t pay dividends at all.
The only problem is, these companies have a peak, once they reach it, they will stop
being trendy and something else will take their place.
Take the example of Facebook.
Back in the day, literally, everyone use to be active on Facebook.
It was the place to connect!
Prior to it was myspace.
In February of 2022, facebooks stock plunged wiping out 230 billion dollars worth of value
and devaluing Zuck’s net worth by 30 billion dollars.
Did the company suddenly lose all of its users?
Did fire erupt on their campuses?
was there a security breach that erased all their data?
No!
The 26.4% wipeout in Meta comes amid concerns about its future After the company reported
its first-ever drop in daily user numbers.
Investors got used to extraordinary growth from Facebook and the moment their expectations
arent met, they start massively selling their shares which causes such plunges.
Of course, there was also a decline in profit.
But that’s normal.
Facebook is facing huge competition from TikTok.
It tried its best to purchase TikTok, but since it wasn't able to do that, it massively
started investing in tools to win this battle with TikTok.
Tiktok is definitely ahead but Insta reels are creating a serious challenge.
So it’s normal to expect Facebook to invest heavily in this sector.
On top of that, since Facebook has rebranded itself to Meta, it’s trying to be a Virtual
Realty company which again means massively investing in building its VR world.
And this is not the first time facebook’s stock plunged so much overnight.
Back in July 2018, the stock plunged by over 20 percent wiping over 120 billion dollars
worth of value.
It was the biggest hit ever.
What was the reason?
Pretty much the same!
investor’s expectatio ns were too high, but at the end of the day, the stock didn’t
just recover but grew by over 100 percent since then, if you don’t count the recent
plunge.
So what happened to Netflix is something absolutely normal in the world of tech.
Netflix lost subscribers for the first time in a decade, that worried investors that,
the age of unrealistic growth is over for Netflix.
Part of that is course related to the fact that the company pulled out of the Russian
market where it had hundreds of thousands of paid subscribers.
If it wasn't for that, I think the plunge wouldn’t be as bad as it was.
But we all know how Netflix subscriptions work.
There are far more people who use Netflix than its 220 million paid subscribers.
That’s why the company suggested that.
a global crackdown on password sharing could be imminent.
Such measures could include charging users a fee for sharing their accounts outside of
their household.
at the end of the day, there is always a limit to how many users can the company attract.
There is always a sharp increase in the number of users at the beginning of the product or
service in demand, so the real challenge is to keep growing once you have reached that
point.
Even Amazon is struggling.
The company reported a slow down, and higher costs in its latest quarter and offered a
disappointing revenue outlook which led the price to plunge by 14 percent in a single
day, the biggest drop since 2006.
The question is, what should we expect next?
Are stocks are going to keep declining?
Or is it just a temporary drop and things will get back to normal soon?
First of all, this is not financial advice and everything that's said in this video is
for educational and entertainment purposes.
And secondly, investors are cashing out.
Real professional investors know that the last 2 years were an exception than normal.
The realistic expectations out of the market should be a 10 percent annualized return and
not 30, 40, or 50 percent a year.
So it’s vital to cash out when you have experienced such a rise.
The people who are going to suffer the most out of this are immature investors who just
got into the market recently and got hooked on these astronomical short-term returns.
Of course, over the long run, everything should rise, but since we are headed into a recession,
the news doesn’t look as good as people hope.
You see, a recession means, that people are going to spend less money since they will
be making less money.
What do you think that means for companies like Netflix or Amazon.
Exactly!
A drop in the number of paid subscribers means profits will suffer at the end of the day
which will lead investors to sell their shares.
I mean, it's a never-ending cycle.
This volatility is pushing investors to cash out.
But what’s the point of cashing out when inflation is so high?
I mean, keeping your money to the mercy of inflation is not the greatest option either.
Inflation might be high but a 40 percent drop in your stocks overnight is far worse.
Of course, at this point, it’s really difficult to make any real predictions.
But it doesn't matter because even if everything crushes, there will be stocks that will rise.
What matters is your overall investing strategy.
You can’t be picking up the right stock every single time.
But if you are new to the stock market, you can check out my investing course which is
simple and fully animated.
If you use the link in the description, you can get 2 weeks of skillshare premium and
get the course for free.
Thanks for watching and see you in the next one.