To follow up our discussion on singles stocks, I thought I’d share a guest post on purchasing singles stocks for fun and speculation.
If you’ve been following the drama that has been Blockbuster (BBI) lately, then you know that the company is everything but stable. Brick and mortar stores are closing at an alarming rate, the amount of debt Blockbuster has is extremely high and Netflix continues to launch better technology (see PT’s Netflix Review). The list of reasons to avoid Blockbuster stock at all costs is long and there’s a very good chance that bankruptcy is their only option but for some reason I found the reward of investing in Blockbuster to greatly outweigh the risk. Allow me a few minutes to tell you why.
First, at the time I purchased Blockbuster, the stock was at $0.33 cents a share and investing $350 to acquire 1,000 shares is not that large of a leap. Yes, I am up to my eyeballs in debt and $350 is still a lot of money however when you consider the potential upside of a stock like Blockbuster ($5 a share is not out of the realm of possibilities), the amount of money that can be made by a $350 investment is thousands. The amount of money lost … still $350.
By the way, it’s not as if I do this for a living, I’m an investing rookie. I’ve never purchased a stock before or even had the money to be able to but I opened up an OptionsHouse account, transferred the money from my bank account to my brokerage account and successfully bought the stock. With a commission of only $4.50, I found OptionsHouse to be the best available online discount broker for what I was after and that was simply a hassle free transfer and a cheap commission.
Second, with all of the negative things happening to this company, there is still one shining light at the end of the tunnel. Blockbuster negotiated a deal with three of the major movie studios that allow them to rent out DVD’s and Blu Ray discs 28 days before Netflix or Redbox can. This means that if you want to rent Avatar today, the only ways to do so is sign-up with Blockbuster By Mail, or visit your local Blockbuster store. 20th Century Fox, Sony and Warner Brothers have all signed on to this agreement, giving Blockbuster the opportunity to get back into the online movie rental game.
Third, I invested in Blockbuster because I understand them. So many people invest in stocks today not knowing how the business operates, what the potential pitfalls are and what is needed in the future to make investment a winner. The goals for Blockbuster are simple. Pay down the enormous debt they have, continue to downsize the brick and mortar stores that are not bringing in substantial cash flow, develop new technology to keep them, if nothing else, competitive with Netflix and most important, build the brand and generate more online subscriptions every month.
With the movie studio deal in place, I think all four of those goals are improved at the same time, making Blockbuster a viable option for my investment. It may sound crazy, especially when all of the talk has been how the only way Blockbuster can get out of this mess is by declaring bankruptcy but I wouldn’t count them out just yet. The price, name brand and potential gain were just too great to pass up for only $350.
This guest post comes from Michael, a contributing editor of the Dough Roller, a personal finance and investing blog, and Credit Card Offers IQ, a credit card review site.
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{ 9 comments… read them below or add one }
If he wanna gamble, he should have bought option calls instead.
Wow that’s interesting…. I vowed not to invest in anything until I am stable but if I was this would be a potential to look at…
Thanks.
Good luck, although I think you would have gotten a much better return paying off your credit cards. Even slot machines would have given you a better return – sure, there’s potential for upside ($5 hah), but way, way more potential to go down.
Hmm, I don’t know – I kinda think Blockbuster’s business model is obsolete. Maybe the 30 day exclusivity thing will make a difference, but, if people have already waited this long to see Avatar on video, what’s another 30 days?
On the other hand, $350 is not a lot of money, maybe your hunch is right, and there’s something to be said for following your gut.
I think Blockbuster will be around, but will continue to have decreased market share…unless they start dominating Netflix online. People still need a physical location to go rent movies, and Netflix can’t provide that service. Nor will they be able to anytime soon. Unless they buy Blockbusters stores. You can go to a Redbox, but RB doesn’t always have the movie you want. So, Blockbuster has the physical location thing owned.
This leaves the online space. Can Blockbuster’s online product ever catch up to Netflix? That’s the question really, I think.
I think you made a mistake when you bought Blockbuster shares..
There is not going to be much demand for them soon: Its an inconvenience to go and pay so much money. The business model is wrong. There stores are mostly empty.
Looks like you struck gold with Movie Gallery’s shutdown. I’d sell now and get out – don’t forget that Blockbuster has $1 BILLION dollars in debt and that it’s on the verge of bankruptcy. If it goes bankrupt, you get 0… pay off your credit cards with the money you made and you’ll make a 16% or more annual gain right there depending on your APR.
I wouldn’t say I’ve struck gold, but a 33% return on a 10 day investment is pretty solid.
With that said, tomorrow is a big step, hopefully in the right direction with BBI’s earnings report. If this isn’t what investors expect, you might see a large selloff, which will all but cripple Blokcbuster.
oh why blockbuster