Keeping it Real, Keeping it Rational: Apple Inc. (AAPL), Netflix, Inc. (NFLX), The Walt Disney Company (DIS)

Stop chasing the trends.  Chances are you’re not quick enough, or informed enough to get in on the action.  Relax, I feel your pain.  It’s hard to feel like the kid on the playground that gets picked last for the dodge ball team every week.  Take Netflix, Inc. (NASDAQ:NFLX) for example, before last week this stock was dead, buried, and a painful memory for most investors after its unprecedented decline in the latter months of 2011.  Then, all of a sudden Netflix shocks everyone with its announcement of huge 4^th quarter revenue growth and it’s off to the races, by the time you realize what’s happening you missed your entry point and once again you’re hanging from the monkey bars wondering where you went wrong.  There’s nothing worse than feeling like you missed an opportunity to hit a homerun.  If that’s not enough, here’s another one, Apple Inc. (NASDAQ:AAPL).. After the hugely successful release of the iPhone 4 in the summer of 2010, it was obvious that Apple Inc. (NASDAQ:AAPL) was the clear victor in the battle for market share in the mobile device industry.  Just when you think share prices have topped out, Apple Inc. (NASDAQ:AAPL) releases the iPhone 4S and the stock soars to record setting levels.  There you are on the monkey bars again wearing a sad face.

The important truth to understand is this:  when the bulls enter the market, rational behavior ceases.  Let’s take a closer look at Netflix recent surge.  The company reports better than expected revenue growth in the 4^th quarter and everyone loses their minds trying to get behind the stock.  If you take a moment to consider the fundamentals you would have to ask the question, what is different about Netflix this time around?  The answer is nothing.  Basically, they are still paying through the nose for streaming rights for their digital content and until they can find a way to liberate themselves from the pricing power leveraged against them for these rights they will have a hard time achieving real long term profitability.

In addition, they are going to have a formidable adversary in companies like Hulu LLC who offer similar services to customers looking to catch up on their favorite TV shows.  Amazon.com, Inc. (NASDAQ:AMZN). is also making strides in its development of a competitive video streaming service that will be available on the Kindle Fire.

I also see Apple Inc. (NASDAQ:AAPL) moving into this space as they work the kinks out of Apple TV.  Over time, market share will become increasingly hard to acquire and the battle will be decided by who can do it cheaper.  In any case the prognosis doesn’t look good for Netflix; nonetheless, the bulls are all in….again.