Netflix has long been a household name, revolutionizing the way we consume entertainment. But for investors, this global streaming giant served as a textbook example of how Rule #1 investing principles can turn market uncertainty into substantial returns.
In this post, we’ll walk you through how Netflix’s stock decline became a golden opportunity and explain the simple yet effective Rule #1 process that guided this decision.
The Netflix Stock Decline: A Market Overreaction
In early 2022, Netflix made headlines for all the wrong reasons. The company reported a perceived subscriber slowdown, sparking widespread pessimism in the market. As negative news cycles compounded, Netflix’s stock price plummeted from its peak of $700 to nearly $350—a staggering 50% drop.
For long-term investors, such a drastic decline in a brand as strong as Netflix was a flashing neon sign: Look closer.
Why Netflix Was Worth Investigating
Many of us have been loyal Netflix customers, some for over a decade—since the days of DVDs delivered by mail. As much as I admired the company, it was never trading at a price that made sense for investing. That changed when the stock dropped to levels not seen since 2015.
Using the Rule #1 framework, we evaluated Netflix by answering three essential questions:
1. Does Netflix Have a Moat?
Netflix has one of the most recognizable brands in the world, making its competitive advantage—or “moat”—obvious. Its vast library of original content, global presence, and ability to adapt to changing consumer preferences solidify its position as a market leader.
2. Does Netflix Have Great Management?
Reed Hastings, Netflix’s founder and then-CEO, is the kind of leader we love to see. His substantial ownership stake in the company demonstrates that he has “skin in the game.” This alignment of interests between management and shareholders gave us confidence in the company’s leadership.
3. Is Netflix On Sale?
Valuing Netflix revealed its intrinsic worth to be around $500 per share. To meet our margin of safety requirement, the stock needed to trade at 50% of that value—or $250 per share.
When Netflix’s Q2 earnings report caused the stock to drop from $350 to $220 overnight, it hit our buy zone. At one point, the stock even fell below $200, making it an undeniable bargain.
Turning Market Fear Into Opportunity
At Rule #1, we believe that market pessimism creates the best opportunities for long-term investors. Netflix’s rapid decline allowed us to invest in a company we’d admired for years at a deeply discounted price.
Consider this:
If you had been holding Netflix stock since 2015, the 2022 decline would have erased seven years of gains in just three months.
Alternatively, waiting for the stock to go on sale would have allowed you to buy at under $200 per share—and you’d already be up over 100% within a year.
This scenario underscores the importance of patience and discipline in investing. Rather than chasing hype or following the crowd, Rule #1 investors focus on buying great companies when they’re undervalued.
The Takeaway: Preparation Meets Opportunity
The Netflix story isn’t just a one-off success—it’s a testament to the power of the Rule #1 investing process. By focusing on businesses with strong moats, exceptional management, and discounted prices, you can confidently navigate market volatility and build long-term wealth.
If you’re ready to learn how to identify opportunities like Netflix, join us at the Rule #1 Workshop. We’ll guide you through real-world examples, teach you how to evaluate companies, and help you create a watchlist of great businesses to invest in when they go on sale.
Retirement Quiz
Will you have enough money for retirement?
Final Thoughts
Investing doesn’t have to be complicated. With the right mindset and tools, you can make the market work for you—turning temporary downturns into life-changing opportunities. Netflix is just one example of how understanding a company’s true value can pay off when others are driven by fear.
