Was the Smart Money Dumb With Netflix?

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BOSTON ( TheStreet) -- Netflix's ( NFLX) fall from grace because of management's missteps has been painful for individual investors. But hedge fund managers who bought millions of shares last quarter are staring at losses they may not be able to recoup.

Netflix shares plummeted 57% in the third quarter, as the chart above shows, after CEO Reed Hastings decided in July to split the company's DVD-by-mail business from its Internet-streaming operations and put a price increase in place. Consumers revolted, forcing Hastings to backpedal on the decision three months later. However, the damage was already done and Netflix lost 800,000 net subscribers in the quarter.


Some investors who watched the high-flying stock from afar predicted Netflix shares would collapse -- they just didn't know when. Hedge fund manager Whitney Tilson of T2 Partners famously shorted Netflix as the stock continued to climb to a record $304.79. Burned by the constant rise in share price, Tilson gave up on the short position before it would have turned profitable. After the plunge in the stock, Tilson is now a Netflix bull, finding himself on the unfamiliar long side.

As shares of Netflix fell during the third quarter, some hedge fund managers smartly sold completely out of their positions. Others, though, continued to pile into the stock, based on data collected from 13F filings made by hedge funds to the Securities and Exchange Commission. Those bets have soured, though, as Netflix's stock has dropped 25% since the end of the third quarter.

Investors must keep in mind, though, that 13F filings don't divulge short positions of hedge funds. Managers who were buying up Netflix shares during the massive swoon may have been only hedging against short positions. The 13F filings don't give any indication of the timing of the buying and selling. Hedge fund managers could have bought above $300 in July or may have picked up shares closer to $100 by the end of September. The filings only indicate a fund's holdings as of Sept. 30.

Though imprecise, the regulatory filings still give retail investors a good idea of which hedge fund managers made the better choices with their Netflix investments. Here are the prominent managers who were buying and selling Netflix during the third quarter:

John Thaler, JAT Capital -- Thaler's long/short global hedge fund, which has positions in several high-flier stocks, piled into Netflix during the third quarter. The fund added 2.1 million shares of Netflix, bringing its total position to 2.6 million shares. While Thaler could very well be staring at losses from his Netflix position, his fund is reportedly up 30% this year thanks to short positions that have counterbalanced losses on the long side.

James Simons, Renaissance Technologies -- The New York-based fund, which employs a quantitative strategy, bought 1.2 million shares of Netflix in the third quarter. The quant fund owned 1.3 million shares as of Sept. 30.

John Griffin, Blue Ridge Capital -- Griffin's fund, which seeks absolute returns by using a long/short strategy, bought about 913,000 shares of Netflix. Blue Ridge owned 2 million shares of the company as of Sept. 30.

Steven Cohen, SAC Capital Advisors -- Based in Stamford, Conn., Cohen's active fund picked up about 435,000 shares of Netflix last quarter. SAC Capital owned more than 611,000 shares of the company as of Sept. 30.

David Shaw, D.E. Shaw & Co. -- The New York-based hedge fund manager added 242,000 shares to his position in Netflix during the third quarter. The fund's total position stood at 557,000 shares as of Sept. 30.

Bruce Kovner, Caxton Associates -- The global macro hedge fund, based in New York, initiated a new position after buying about 55,000 shares of Netflix last quarter.

Chase Coleman, Tiger Global -- The New York-based fund completely dumped its holding in Netflix, selling more than 1 million shares. Coleman found other places to put his money to work, initiating stakes in companies like HomeAway ( AWAY), Sina ( SINA) and Polypore ( PPO).

Phillipe Laffont, Coatue Management -- Laffont's hedge fund, based in New York, substantially cut its holding in Netflix by 936,000 shares, leaving the fund with only 8,500 shares as of Sept. 30. Coatue's newest investments during the quarter were Universal Display ( PANL), Intuit ( INTU) and Research In Motion ( RIMM).

Curtis Macnguyen, Ivory Investment Management -- The Los Angeles-based value shop, which has a relatively low profile compared to other hedge fund heavyweights, sold its entire 908,000 shares of Netflix last quarter. Instead, the hedge fund made new buys of Hewlett-Packard ( HPQ), Google ( GOOG) and Bank of America ( BAC), among many others.

Steven Mandel, Lone Pine Capital -- A former student of legendary hedge fund manager Julian Robertson, Mandel dumped 639,000 shares of Netflix, bringing his position to zero. The fund instead made seven new buys, including Las Vegas Sands ( LVS) and Visa ( V).

Jeffrey Vinik, Vinik Asset Management -- The Boston-based hedge fund manager, known for his secrecy, dumped his entire stake of 80,000 shares of Netflix. Instead, Vinik went on an ETF buying spree in the third quarter, initiating positions in the SPDR S&P 500 ETF ( SPY), iShares Russell 2000 ETF ( IWM) and the PowerShares QQQ ( QQQ).

-- Written by Robert Holmes in Boston.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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