I’m an amateur investor to say the least, in fact several months ago was the first time I’ve purchased any stock. See, I have a Roth IRA account and the money was just sitting there not invested, so I figured it was time to actually put that money to use. This may not seem like it has anything to do with films or filmmaking but it will get there, just bear with me. 

So not having any experience with stocks, I looked into investments that would not only interest me, but would have the opportunity to grow my portfolio (I feel so grown up simply saying I have a portfolio). And I did my homework, I didn’t just go in there half cocked. I set my sights on two stocks, Netflix and Lionsgate, and began researching the two.

I went after Netflix because I predicted that with its expansion into South America and the UK that its Q4 2011 and Q1 2012 financial reports would beat expectations. I bought the stock at $66 lower than its all-time high based on my predictions and the belief that beating those expectations would bring the stock back up to those all-time highs.

Then the price increase happened, and the internet got its panties in a bunch over having to pay $8 a month for unlimited movies instantly to your TV. Seriously internet? Anyone who follows the business of Netflix, or any online video subscription service really, could tell you that the price increase was inevitable. Many of the contracts that Netflix made for a lot of its online movies and series were done before Studios realized the value of online streaming video and many of those were expiring in or before 2012. Just to renew those contracts alone would be exponentially higher since studios finally realize the value of those contracts. In fact, online streaming contracts for Netflix in 2010 was roughly around $180 million, just to keep that same content without adding anything else for 2012 would cost the company close to $2 billion because renewing their deals was going to cost that much more.

TV series are the bread and butter or Netflix, some studies point out that 30% of prime time internet use in the US is from Netflix alone, and no contract best exemplifies the increased cost of their contracts then their deal with NBC. Netflix has “The Office,” “30 Rock,” “Parks & Recreation,” and the different “Law & Order” series through their deals with NBC. Although numbers really haven’t been made public, some believe that just keeping that contract was upwards of five times what the original deal was for.

And this brings me to the problems I have with the internet and stocks. There seems to be a belief out there that if something’s on the internet, it has to be free. There’s a ton of entertainment online and most of it is free which is why people have this idea. But that’s not how it works. What Netflix is putting out online is copyrighted material that costs them tons of money. And because they originally offered their Instant service for free along with their DVD subscriptions, people just assumed they should be getting the service for free as well. That’s not how the real world works people.

And now my issue with market analysts and stocks; it’s not so much about how well the company that you’re investing in is doing, but rather the perception of how well the company is doing. Due to the price increase and the ill-fated attempt to split the DVD service from the online service and into its own company called Qwikster, stocks of Netflix plummeted down to under $100. Not based on how well the company was doing, but rather based on the market analysts idea that suddenly now Netflix was tanking, that the company was in disarray, that they were hemorrhaging customers and that the stock had had an inflated price tag for too long and other services like Hulu and Amazon Instant would take big bites out of their market share. All of it was basically bogus. But then again, I feel like market analysts are basically like weathermen, they’re right maybe half the time.

The look I imagine Market Analysts to have 50% of the time

So Netflix stock went down hard and then yesterday afternoon after the closing bell, Netflix released it’s Q4 2011 financial reports which showed that it beat expectations, didn’t lose nearly as many customers as some predicted, and had actually gotten nearly all those customers back. Netflix stock instantly shot up in after hours trading and was up about $21 today.

Which is why I’m so pissed. Months ago, I looked at Netflix and said it’s going to beat Q4 2011 and Q1 2012 expectations and was right, and the stock is still much lower than where I bought it because analysts view the perception of the company over how well it’s actually doing. Netflix is just as strong, if not stronger with it’s expansion to South America and the UK, than it was months ago but it’s stock value is still well below where it was then.

The other stock I’d purchased was Lionsgate which most analysts weren’t paying any attention to. Now Lionsgate was much more affordable of a stock than Netflix and I was able to purchase many more shares of it. I purchased the stock at $6.67 a share. I chose Lionsgate for a few reasons, specifically because they were going to be releasing The Hunger Games in March of 2012 and I know that will be a huge hit and start a new 4-film multi-hundred million dollar franchise if not multi-billion dollar franchise and will have a huge Q1 2012. They also were looking into creating a Tyler Perry network and had been rumored since way back in 2008 as a buyer of Summit Entertainment (owners of the Twilight series). So both of these stocks were long term investments for me, where I was planning on holding on to them for at least six months if not more.

Well Lionsgate finalized its purchase of Summit Entertainment this past week and over the past month analysts have finally come around on Lionsgate and realized what a good investment it is. As of the closing bell today, Lionsgate is now trading at almost $11 a share. It’s up $4.29 a share from where I bought it, which is great for me because it’ll cover much of the loss from the Netflix stock I bought, but goes back to my original point about analysts. They didn’t have Lionsgate on their radar months ago despite all the signs being there for the stock to rise drastically in the coming months. It took the Summit acquisition over the past couple weeks for analysts to finally realize that Lionsgate was a Studio on the up, now they’re looking at it and saying that getting the stock now before it reaches $12 is a gift. Where were they months ago? If a complete novice like me making his first purchases and making accurate predictions 6 months into the future about their financial earnings can do it, then what are they doing?

Just looking at how high Netflix has skyrocketed today alone suggests how far off analysts were about the financial makeup of the company. Not only did Netflix beat financial expectations for Q4 2011, they did it during the most tumultous time in their history, when all the analysts were spewing almost nothing but doom and gloom about the company, and they have already recouped nearly all the customers lost during the price increase.

So I guess the bottom line is, I don’t know how market analysts have jobs and that’s why I hate the stock market.