But in the case of Netflix, you've got to keep an open mind, and I did keep an open mind in this case, developed a much greater appreciation for the company. So when I covered-- I've short it from 80 to 200. I covered my short. It went to 300. I felt pretty smart. Then it felt eventually to 50 navigate to this website.
It fell 80% in a matter of about three months. And I want to kill myself, because everything I predicted in my short thesis came true. And I said, Whitney, you idiot. My learning was is don't get scared out of a short. You have conviction in it, right? But that actually wasn't the right learning, though, because Netflix was a massively better company than I thought. And the key pillars of my short thesis were there's no moat around the business, and sort of wacky management, and competitors are going to come in and eat their lunch. All of my pillars of my short thesis were wrong. I was right to cover, no matter what happened to the stock. But what it did is is by gaining appreciation of the company, I was ready to pounce when the stock collapsed. And so that's a great example. I wish I were that open-minded and learned and had great experiences like that more often. So that's a good case study. Anything to add, John? JOHN HEINS: I would say a lot of it is understand why you made a mistake. It may be that you didn't really make a mistake. The analysis was good, it was sound. And then something else happened that made it go wrong. And so you shouldn't necessarily-- if you understand why you made the mistake, you shouldn't necessarily just not do that exact same thing again next time. AUDIENCE: Sorry. I have two questions. The first one is your portfolio has about 15 stocks. It has a very small number, right? So how do you screen off the thousands of stocks? What are some of the top three or five factors you use as filters? That's number one. Number two is my general impression is that the market tend to ignore balance sheet items. So just like a lot of cash, investment, the P/E number, totally ignore balance sheet. What do you think? How do you think about that issue? WHITNEY TILSON: Well, I use a four-step-- I actually have it taped to the wall next to my desk. My four-step process is first, when I look at any new stock is circle of competence. Do I know something about this industry? Is it knowable? Is the future predictable here? It's almost like a yes or no thing. There is some gray area where maybe I don't know it very well, but I think I can do some research and get some. So circle of competence. Then it's do I like the company. And I look at financial characteristics, cash flows, return on equity, et cetera. So I evaluate the company. And by the way, I'll invest in sort of crummy companies if it's cheap enough. But ideally I'm looking for higher quality businesses that I can compound over time. Then I look at the industry, because a good company in a crummy industry, eh, is going to struggle. So it's a company and industry analysis, then management. And that's really important. Both, do they run the business well? Do they allocate capital well? And do they treat shareholders well? And here's the thing. I can find-- right now I can find hundreds of companies that I understand really well, great industry and company dynamics, wonderful management, treats shareholders great. So what's the problem? The stock's not cheap. Everybody else on earth can understand it and likes the company and the industry and the management, and therefore, the stock price reflects it.
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