Greenberg: The Golden Age of Momentum
NEW YORK (
) -- "The Golden Age of Momentum," was the way one guy on
responded to something I posted about
(NFLX - Get Report)
And what I posted was something I hadn't ever seen: A CEO and CFO being blunt and candid about the momentum propelling their company's stock.
In a letter to shareholders co-authored by Netflix CEO Reed Hastings and CFO David Wells, the duo said:
"In calendar year 2003 we were the highest performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003. Despite the huge swings in our stock price since our 2002 IPO ($8 to $3 to $39 to $8 to $300 to $55 to $330), we've continued to grow our membership every year fairly steadily. We do our best to ignore the volatility in our stock."
Interpret any way you wish, but this much is clear: When the CEO and CFO of a company say on one hand they do their best to ignore the volatility in their stock, but on the other acknowledge that their stock's performance is starting to feel somewhat like "momentum-investor-fueled euphoria," we are at or near yet another golden age of momentum.
You know it when you see it: Stocks go higher in single-day leaps and bounds that confound even the company itself.
Billions in off-balance sheet expenses? Nosebleed valuation? The uncertainties over Hollywood angst about this new king of swing? Irrelevant.
Here's all you need to know: Netflix, especially with this quarter -- the sweet spot of this golden age of momentum -- is a company whose swift ubiquity and equally swift (no, make that impressive) rise in the number of subscribers has become legendary in its own time. (Hats off to Hastings for not just creating, but disrupting and executing.)
Now comes the hard part: Not just keeping it going, but outpacing even itself.
One of the rules in the golden age of momentum is that there can be
disappointment, and the bigger the beat the better.
When that fails to happen, the golden age of momentum can be as fleeting as stardom. Good luck trying to figure out when that will be. But it
be. Poker, anyone?
: As long as the Fed feeds the frenzy with low interest rates, and high-frequency trading amplifies it, this golden age of momentum may go on longer than even the bulls expect. Or it may stop tomorrow. What Alan Greenspan coined in 1996 as "irrational exuberance" is today, as Netflix's top brass put it, "momentum-investor-fueled euphoria." Or as I recently put it, this is
a greater fool theory
of a market. It goes until it doesn't.
I honestly don't know if this is 1996, 1999, 2003 or 2008 -- and neither does anybody else. The best guesser is the next guru. Get out too soon and you feel foolish. Get out too late and you're the fool. In the meantime, the beat goes on...
--Written by Herb Greenberg.