Throughout 2011, a considerable chunk of my Seeking Alpha articles focused on Sirius XM (SIRI). You can leaf through my history of writing about the stock here. In virtually every article, particularly after I turned bearish, commenters take me to task not only for spewing a somewhat negative view of the company and the stock, but for a perceived flip-flop in sentiment.
For the record, I was long SIRI throughout much of 2010, prior to entering the Seeking Alpha scene, via the stock and call options. I got out at the end of 2010, turned bearish, became bullish again on hype from CEO Mel Karmazin and have remained bearish since mid-2011 when I realized several headwinds, namely a poor long-term strategy that does not focus well enough on expanding and diversifying revenue streams.
In this article, I quickly summarize the emotion that surrounds the stock. I consider reasons why such unbridled passion exists, matched only by the enthusiasm of Apple (AAPL) longs and the few remaining Research In Motion (RIMM) bulls. I close by discussing the wider implications the non-stop Sirius XM hysteria has for the larger universe of investors.
In a September 12, 2011, Seeking Alpha article, I dig into the hyper-sensitive chaos that tends to surround the stock and the group of ardent longs, who I playfully refer to as "the Sirius XM Peanut Gallery," largely responsible for the ruckus:
After questions about options and offers of free beer from successful RIMM and Netflix (NFLX) shorts, the most popular correspondence I receive from Seeking Alpha readers gets nicely packaged in the following comment to a recent article:
Actually, this type of query comes after options questions, free beer and threats from SIRI longs that they're waiting for me in the alley of my Buenos Aires apartment building (I use that geographic reference to throw them off of my trail).
In all seriousness, though, this question - what drives these people? - and its possible answers can inform not only current and prospective SIRI shareholders, but investors in general. While these issues tend to be a bit more complex in explanation, four reasons sit at the heart of this conundrum:
1. Bagholders. Look at SIRI's chart. A boatload of investors with horribly high cost bases likely still exist in this stock. There's no question that plenty of them have resorted to pumping the stock on a daily basis the way a worker with a manufacturing economy's skills and no education settles for minimum wage labor.
Click to enlarge
2. Life-changers. Take another look at SIRI's chart. This stock changed the lives of quite a few people. Props to them. I wish I would have bought 250,000 shares at a dime or sold when it hit $60.00. If a single stock helped secure my retirement, buy me a house or something else I really wanted or needed or, in some instances, made me a millionaire, I would probably have some sort of emotional attachment to it as well.
3. Dream-chasers. Whenever a stock, particularly a penny stock, changes lives, gaggles of others chase the dream. It's at this juncture where this whole discussion really matters to investors with and without an interest in Sirius XM.
Just because it happened before and to others does not mean it has to happen to you. At one time or another, we all succumb to this type of psychological self-entitlement. It's almost like hanging on to the dream of becoming a professional athlete just because Wayne Gretzky made it. That flew when you were six or even 16, but not in college when such fantasies should die hard. Endpoint - SIRI was a much different stock (forget the company) at a dime and at $0.50 than it is at $1.50, $1.80 or $2.00.
Don't chase the dream. It rarely works out. That's a big reason why I am not buying McDonald's (MCD) as it breaks $100. I accumulated a considerable stake in MCD in the mid-to-late 1990s, which for some unknown reason, I sold. Had I held on for just over a decade my life would likely be much different today than it is, although I have no meaningful complaints, once I dial in proper perspective.
4. Rubberneckers. The confluence of #1, #2 and #3 creates an emotional train wreck that's tailor made for (anti)social media and the Internet. Plenty of people love to stop and watch a contentious debate. A sizable few, even some without an actual interest in the outcome that will never come, throw themselves, with full force, into that debate. This ingredient triggers the true hysteria, which prompts the type of snowball effect that creates false perceptions that a whole bunch of people care one way or the other about the issue at hand.
In reality, these permanent passersby really do not care. They're just slowing down to watch the accident. They never get out of their cars to actually contribute anything meaningful to the debate. Rather, they sit behind the wheel and gawk at the damage, allowing the rest of the world to marvel at the stream of headlights stuck on the highway.
The more I involve myself in investing and these types of discussions, the more I realize we have to treat the relationship between the two much the same way we should treat the union between politics and the 24-hour news cycle.
If you truly believe that O'Reilly's looking out for you, you'll probably do a bad job in a political debate or in the voting booth. By the same token, if you invest on the basis of what Jim Cramer said last night on CNBC, you'll probably lose lots of money. Just as I hope readers come to me for a different perspective, a unique take or new ideas - mere starting points for much larger research efforts - I hope they also take the hype and hysteria (i.e., Cramer and message boards) that surrounds certain stocks with a grain of salt. If you don't, you could be setting yourself up for disaster.
Additional disclosure: I am long NFLX June $40 put options.