‘The few times I’ve done investing, I’ve lost my shirt’: Reed Hastings opens up on his investing track record
Netflix cofounder and executive chair Reed Hastings is a billionaire but admits he has trouble figuring out what to do with his money.
“The few times I’ve done investing, I’ve lost my shirt,” he said in an interview on podcast The Tim Ferriss Show.
Hastings, who has an estimated net worth around $6 billion, chalked up his poor track record to his demeanor, which he said isn’t ultimately well-suited to the world of investing.
“I realize I’m just so optimistic,” Hastings said. “Anybody who seems to have a good idea, I’m like, ‘Sure!’”
Hastings moved away from taking a more active hand in his investments when he realized his optimism meant he wasn’t wired the same way the best investors are. “It’s a different DNA than [what] differentially good investors have,” he noted.
Hastings said he’s learned his lesson and now relies on funds that keep pace with the market instead of trying to beat it, as well as his stake in the streamer he founded. “I’m a pure index-fund investor. I’m Netflix plus index funds,” he said.
According to SEC filings, Hastings owns about 3 million shares of Netflix stock valued around $1.9 billion at the time of publication.
One recent notable exception has been Hastings’s investment in Powder Mountain, which Fortune previously reported on. He bought the ski resort after the first group of investors failed to make good on their idea of turning it into the Burning Man of the slopes.
Otherwise, Hastings seems to have a rather traditional investment strategy of relying on index funds and company-granted stock options.
Index funds are safe investments in uncertain times
Index funds are investments that track a given benchmark, like the S&P 500 or the Dow Jones industrial average. They’re generally considered a safe way for investors to have their investments grow at the rate the market does. As Hastings’s remarks show, it can be very difficult for even the savviest person to beat the market.
Investors often put their money in index funds because they have a record of outperforming actively managed funds, where an expert picks what to invest in. A study from 2022 found that out of 2,132 actively managed mutual funds, not a single one outperformed its benchmark index. That’s been a consistent trend for years now among funds; 2023 marked the 14th consecutive year the majority of actively managed large-cap stock funds, which invest in companies with high market capitalizations, performed worse than the S&P 500.
That might explain why index funds have become so popular, even among institutional investors this year when economic forecasts are somewhat nebulous. There’s been chatter of a recession for almost two years now; the Fed still hasn’t offered firm commitments about interest rates; and who knows if the unemployment rate will remain steady? Meanwhile, markets are rallying, but many investors are unsure if gains will continue, while others are convinced they won’t.
Despite all those unknowns, the S&P 500—one of the most common benchmarks for index funds—has been up 27% over the past 12 months. Much of the S&P 500’s growth was powered by tech stocks, including Netflix. But there are indications it could start to broaden to other sectors, which would bolster investors’ portfolios.
Index funds’ critics say they concentrate too much power in too few people
The rise of index funds, first started by Vanguard in 1975, elevated a new type of finance executive, like BlackRock CEO Larry Fink. BlackRock, for example, manages $4.9 trillion dollars in its index funds, making it one of the major asset managers worldwide.
Index funds have also prompted a more theoretical debate over the structures of the market. Some contend that their effectiveness is proof of concept for “market socialism” because index funds feature common ownership of collective assets. Bloomberg opinion writer Matt Levine, who has covered index funds extensively, disputes the idea on the grounds that just because an index fund allows its investors to have collective ownership of a company, it doesn’t require they all own the same amount.
Another issue at the heart of the dispute over index funds is who exactly manages them. Supporters say that because they are passively managed without a portfolio manager or investment professional they cut out financial middlemen, reducing fees for everyday investors. Most index funds have fees, called expense ratios, that are below 1%. Still, critics say they’ve concentrated power in the hands of just a few companies—BlackRock and Vanguard among them. In a 2018 paper, Harvard law professor John Coates argued that only 12 people would ultimately make all the investment decisions regarding index funds. An analyst from Morningstar acknowledged that might be the case, but it hurts middlemen not retail investors. “Indexing has most substantially affected the financial-advice industry,” the analyst wrote.
Regardless of what happens to the index fund industry or to his specific investments in them, Hastings can always fall back on his Netflix shares. The stock is already up 35% this year, increasing Hastings’s net worth by about $496 million.
