In Part 3, I review my decision to buy a stock that I had previously owned. It was doing really well for me on paper, but then a negative game changer moment ensued that lifted the rug out of the stock. Despite this, I decided to buy back in. One trait I see with investors is if they have had a bad experience with owning a stock, they will be hesitant to buy it again. It's totally natural. We're all challenged by recency bias behaviours. The old adage of "fool me once, shame on you and fool me twice shame on me" mantra plays very well into our behaviours. As I say with my coaching clients, you have to let whatever happened in the past stay there and move on. You have to think like a goalie who let a bad goal in. Turn the page fast or it will linger.
Opened position in Neulion (Ticker: NLN)
I had opened a position in Neulion in March of 2014. The company provides the technology that enables broadcasts to be streamed live. Their main target market is professional and collegiate sports leagues. It has had contracts with every major professional sports league in North America. Some people have called Neulion the Netflix of sports programming. I bought it the first time as a speculative investment (meaning it made up a very small weighting in my portfolio). It was a stock that I was up almost 90 percent on paper before it tumbled back to earth after it lost a major contract from the NHL. I ended up exiting the position up 10 percent which is a small consolation but still a little smarting from where it was. At the time I thought the loss of a contract to one of the major North American sports leagues was a negative game changer moment. Was this the first shoe to drop? I didn’t want to hold on and find out so I got out and banked the profit.
I said at the time, I would check in on the company periodically to see how it managed the body blow. It turns out it appears to be holding its own. It hasn’t lost any more major contracts. Revenues continue to grow. In fact its presence has grown as the company acquired Divix a European company to expand more aggressively into Europe. It’s lined up deals with some major sports broadcasters in Europe. It’s breaking even on an Economic Profit basis. The fact that there hasn’t been any significant hemorrhaging of business gives some comfort for the company to resume and implement its growth strategy. The company’s balance sheet remains very clean with no debt so the company is not going out of business anytime soon. With its state of the art streaming technology portfolio, it could serve as an interesting buying opportunity. That concept manifested itself recently when Disney took a 33 percent stake in the Major League Baseball’s technology unit (the one that won the NHL streaming contract from Neulion). The move puts a value on the MLB property at $3 Billion. If the MLB property is going for $3 Billion, what would Neulion which has a much broader portfolio of clients go for? A heck of a lot more than its current trading price of $0.95 that I bought into.
The Disney move is also significant in that it is an acknowledgement that the traditional content distribution channels (i.e. cable and satellite TV) are being threatened by streaming services led by Amazon, Netflix, Google, and Apple. Disney’s ESPN channel have recently seen unprecedented drops in subscriber who are cutting the cord and choosing online services to get their content. As more content gets streamed, services like MLB and Neulion could gain traction. This strategic shift is what appeals to me as investor in Neulion as its focus and speciality is on just sports content and the area that has a lot of untapped markets and opportunities.
Will Neulion get taken out for fat premium? I have no idea but there is a precedent out there. So I decided to again buy a very small position in the company and tuck it away and see how it goes. As I said this is a very speculative investment decision that is going a bit out of my comfort zone and ideology but I’m OK with it as it appears to be a high quality business. If the stock goes down further without any significant news (i.e. like the NHL contract) then I would comfortable to add more shares.