Wow did Moviepass and HMNY really humble me as an investor, or should I say gambler, on stocks. I learned a lot and man oh man did the experience humble me and make me a bigger skeptic than ever before on Wall St. and buying individual stocks. I have always accepted that buying individual stocks is risky, and have always tried to advise people who read this blog to not invest more than 1% or possibly 2% of your portfolio in ANY single stock. I sure stand by that advice as we head toward the end of the year. With Moviepass in a literal death spiral that looks very unlikely to correct, I am very grateful this Thanksgiving that I stuck to that rule.
In this post, I want to share some of the biggest lessons I learned and really relearned after investing in HMNY. I think it is important to write these things down so I am less likely to repeat the same mistakes, and I figured I might as well share them with others in hopes that maybe they can learn from my mistakes and save them from making the same.
First big lesson – I did not do enough due diligence on the management of this company. I was aware that Ted Farnsworth had a less than stellar record, but I did not truly understand what a total crook and fraud that guy was and still is today. It is just about impossible to do well with a stock if the leadership is dishonest, self-serving, and has a bad past. I overlooked Farnsworth because I really believed in Mitch Lowe, that also turned out to be a mistake. While I still believe that Mitch Lowe has some good qualities, I believe I heavily misjudged him as well. While Mitch did play a role in Netflix and he also did a decent job at Red Box, it appears that he is not investible on his own right. He really spent a relatively small amount of time at both of those companies, and it now seems more likely than not he had little to do with their success. Mitch and Ted together was a toxic management combination, bringing together greed, entitlement, carelessness, hubris and all kinds of bad things for shareholders. I should have listened more closely to what others were saying about Ted, the signals were there, it was my mistake not to listen to them. I truly hope Ted lands in jail someday. His deceit caused many individual investors to lose a lot of money, some have said that people potentially committed suicide over their losses related to this company. I sincerely hope that is not the case. I think Buffett and Charlie say something like that greatly prefer a talented management team, but they would take honesty over talent any day. Because if you are both talented and dishonest, you are very dangerous. It may be giving too much credit to Ted to say he has any talent at all, but he most certainly is dishonest. It was a big mistake to trust him with a single penny of my money.
My second big learning lesson. I was arrogant and put on blinders. This one really gets me as I have had enough training and experience to know better and to be more thoughtful and fully consider other people’s ideas and opinions. In this case, it was even worse because there were good people who knew more than me about the potential pitfalls of this stock, that I should have listened to more carefully and with much more respect. Mark Gomes was one such person, but there were others who also warned me that this was a risky bet and that dilution and potential lack of funding were serious potential roadblocks with the company. Obviously, they were right, and had I listened and really sought to understand their arguments and weighted their experience and opinions equal or better than my own, I would not have bought a single share of HMNY. I have always loved Warren Buffet’s simple baseball analogy for picking stocks. There was enough wrong with HMNY that I was a fool to swing at that pitch. The bad and dishonest management history and the fact that others with solid stock picking experience were waving red flags over the company’s dilution and ATM plans. Those were more than enough to toss this one on the heap of “I am not sure, maybe later maybe never pile”. Unfortunately, my own arrogance and bullheaded nature enticed me into believing what I want to believe about Moviepass, I was stupid enough to also believe what dishonest management was saying about their business. I used management’s lies to reinforce my own arrogant tunnel vision on the positive prospects for the company. This made for a fool and his money – being easily parted. Shame on me for not fully listening and considering more viewpoints. That was a rookie mistake, and I know better. Damn it!
Third learning lesson. Wow is this an obvious one, if it is too good to be true – it is! That was definitely the case with Moviepass, both the consumer deal and the business story really was too good to be true. I can almost give myself a pass on this one because Mitch Lowe, in particular, was so convincing with his pitch, he had his song and dance on how they had years of data that proved that people would “settle down” and on average utilize Moviepass less than one time a month on average. That was total bullshit of course, and only now after making the product totally impossible to use have they been able to get utilization rates anywhere near where they had promised they would be with the unlimited once daily plan. But I can’t give myself a pass on this one, because
Fourth learning lesson. This is really an aside, but may be useful for some. Generally people on stock boards like stock twits, yahoo etc. are really horrible people. Not all, but most. I have bumped into a few good people on these boards, but for the most part, these boards are full of angry, strange, rude, petulant trolls who seem to be miserable most of the time. I regret almost all the time I have spent on these boards, and regret engaging in similar conduct from time to time on them. These places bring out the worst in people. They are like the Vegas strip full of losers, gamblers, and hustlers – only they are worse because it is all virtual and almost entirely anonymous which means that it is rare to run into anyone with even a modicum of civility. I am pretty sure that an eternity in Stocktwits is what hell would be like, just add the fire. I highly advise people to totally stay away from these boards, and if you do go to them, visit them sparingly. The advice is generally bad, not trustworthy, and the environment only leads to bringing out the worst of human behavior and it is hard for it not to rub off on you.
My fifth and most important lesson – or reaffirmation in this case. It is almost impossible to beat the market, and it makes no sense to try. I know this and have known it for many years. There is so much overwhelming evidence of this fact that it smacks of total stupidity to try and pick stocks that will help you do better than the market. I will write another post that goes into this in more depth soon. I will also talk about why I think many people just keep on trying, even when they know that can’t beat the market. It’s something like a gambling addiction, but worse because it is so delusional. But it is important to reflect here that this was another insane attempt to beat the market that backfired for a lot of people. As a group, we know it is stupid to try, and if you don’t know, I will spend a good amount of time trying to convince you that you are not the 1% or less of people who can beat the market. If you are reading this, I can guarantee you that you are not the type of person who will likely ever beat the market, so you should just put down the mouse and turn off your trading screen before you hurt yourself, or your financial future.
In the end – I promised myself and readers I would hold on to this stock for 5 years. I have about 4 years left to hold this heavy bag, and there is a cold day in hell scenario where this stock does return some value, it will never ever get back to its all-time high. But there are some possible scenarios where this POS gets a bit back. They are highly unlikely of course, and I absolutely do not recommend this stock to even my worst enemy on Stocktwits. – Well maybe to them, but nobody else 🙂