Thursday, May 12, 2005


Today, after JP Morgan upgraded NWAC, one of my accounts added shares. After a discussion about the change in the board at Blockbuster, we added NFLX to another account. To make these purchases required off setting sales. We unloaded two oil drilling stocks.

Sometimes, it is hard to explain or to even understand why a trade is made. A number of great investors, past and present, have believed it is important to take the emotion out of the market. Other great investors have relied on their "gut" feeling to make decisions.

The airline purchases I have made are probably half based on logic and half on "gut" feeling. I suppose the same can be said of the NFLX purchase. The situations are very different and both are speculative investments. One might conclude that I am drawn toward risks.

I believe the airline business will eventually be a classic turn-around story. America needs these airlines. The current situation is cut-throat. At some point, the survivors are likely to realize that they must not cut prices but play a good game of "tit for tat". When this occurs the profits could be enormous.

NFLX is in a dying business, mailing of Dvds, but it appears to have beaten back the old line dominant player. I don't believe Blockbuster needs to get out of the DVD by mail business but I believe it should offer a price that is competitive to the NFLX price. Few established NFLX customers are going to leave NFLX to save a couple of dollars per month. However, many an in-store rental customer will discover that the "rent by mail" system offers more value. My gut tells me that NFLX is going to "own" the "rent by mail" business. I am also willing to bet that NFLX will be successful, when the time comes, in converting many of the "rent by mail" customers to "rent via the internet" customers. It is just a hunch!