I often get messages asking me where I have gone when the stock market goes down. Readers are quick to notice and quick to point out that I tend to write extensively while the market and equities I follow are appreciating, yet I sort of go into hibernation when things go sour for the short term.
Bulls can hibernate, sometimes better than bears can.
It's a fair observation. A quick look at my writing history will show that in times of market downturn or turmoil I tend to back off, or even vanish completely. Is it because I get scared away? Is it because I've somehow lost my long term fundamental opinion and am licking my wounds, so to speak? No, and no.
Learn to enjoy it.
The downturns, the pullbacks, and the sharp selloffs are what I have learned to expect, and to enjoy the most. While I am certainly no market timer, and while I have proven on each and every attempt that I am no day trader, I have learned one very valuable lesson over the years. Stick to your long term plans when people are being irrational.
Stick to your long term fundamental viewpoint. Seize weakness unrelated to your investments, yet affecting your investments, as opportunity to add to or adjust your position.
And that's exactly where I am at with Sirius XM (NASDAQ:SIRI).
Stick to the fundamentals.
The long term fundamental viewpoint of the stock has not changed, yet over the short term the equity has traded down, and down, and down as the overall market rolls over in a storm of (in my opinion) nonsense. Sure, the Fed will taper QE, maybe, sometime at the end of the year. Sure, the Fed will raise rates, maybe, by the end of next year. But what does that have to do with Sirius XM?
I can already tell there are a few out there who are ready to stand up and offer their doom and gloom cases for how rising interest rates, maybe, in 18 months may cause borrowing costs to skyrocket and cause people to stop buying cars. I can already tell that there are a few out there who are ready to stand up and shout about how the world is coming to an end once QE is taken back, and nobody will have the money to pay for Satellite radio which will result in a mass exodus from the stock. And please, let's just agree that the "Apple (NASDAQ:AAPL) and Pandora (NYSE:P) are going to be the death of Sirius XM" crowd can stay locked outside the door on this discussion. We've heard enough about that over the years to last a lifetime.
Stick to the plan.
So what's the deal? What in the world do you do when the market goes one way, and you are expecting your investment to go the other way? Run? Too late, I'd argue. Get angry and cry manipulation? Look to place blame and point fingers? That's not really productive.
No, you stick with the plan. You check your investment in Sirius XM to be sure that the fundamental issues have not shifted. Are auto sales up?
Is Sirius XM's buyback still in place? Well, the company has not disclosed that it has ended, so yes.
Done, done and done. Therefore the plan is not to get angry, upset, or irrational. The plan is not to take to the streets in a fit of rage. The plan is to add to your position on weakness, or shift to strategies that seek to gain on rebound.
Most who read this will have a long position in Sirius XM. You've bought the stock years ago or even recently and are looking to hold for a length of time because you believe in the company. Now that the stock is testing areas that looked like a steal just days ago, you know, that time when many were saying "oh man, I wish I had bought back when it was $3.15 a share!" Well? What are you waiting for?
Do you want to be the super smart guy who grabs the exact penny of the bottom? Are you that good? Give it a shot. But let's be honest here, the majority of investors are simply not going to get that bottom penny. For the other 99% it's a matter of picking a range of prices you find attractive and buying in that area. That area has, and will continue to be, the 50 day moving average.
As I write this that point is way the heck up there at $3.32. I'd argue that current pricing looks extremely attractive, and if share prices at the point of January 2014 options expiration in 7 months approach my target of $4.25, $3.15 will look pretty darn "smart."
A lesson learned.
There's a movie I watched as a kid that sticks with me to this day. The Goonies. Have you seen it? I'd guess most of you have unless you are either very old or very young. There's a scene in the movie where the children are feverishly grabbing the pirate's gold during a frenzied moment and the "leader" of the group, Mikey, stops them short of taking a small pile of One Eyed Willy's gold sitting on a scale in the middle of the table. Later on the "bad guys" grab this gold and set off a booby trap in the process.
While it was unlikely that Spielberg was firing off stock market lessons to his young audience, I feel as though I gathered a valuable tip from that childhood movie. Always leave some for Willy, or risk the consequences. By that I mean don't be greedy. Aiming for first place is admirable in many cases, but in the stock market seeking 100% when 90% is at hand often results in missed opportunity and thus "cost." Refusing to buy at $3.15 may result in $3.15 being the bottom, and thus missing what will appear later to be an excellent opportunity.
That means if the share price goes to $3 before heading back up, be pleased with your purchases and your profit and your plan and congratulate the guy that timed it to the exact penny. Good for him, and good for you. My plan has been to buy under the 50 day moving average and while this has resulted in very short term paper losses, the gains over time have been immense since 2009. The guy that grabbed shares at $1.30 back in late 2011? Good for him. The guy that got shares for $1.79 in mid 2012? Good for him. The guy that just might get shares for $3 or less here in the middle of 2013?
Congratulations. Good for him!
In my opinion current short term weakness in the market offers wonderful opportunity in equities you hold a long term and strong fundamental opinion on. I would urge investors to look into adding to their position in these stocks, such as Sirius XM, and to tune out the noise of the media and the confusion which the perma-bears love to throw around at times like this. You don't have to be the smartest guy in the room. Just be smart. And the smart thing to do here for the majority of investors (notice I did not say day traders) is hold, and if you are able, add to your long positions.
Additional disclosure: I am long a collection of SIRI January 2014 calls from $2 to $3.50 and short an equal number of $4 calls. I may cover my $4 calls if opportunity presents itself.