Bulletin board material is often used by clever coaching staffs to motivate teams that are about to face a seemingly arrogant opponent – you know the ones that always go out of their way to either boast about how good their team is or how badly they are going to beat a rival. The smart ones know this and avoid (at all costs) any microphone shoved in their face by the media looking for a sound bite because they have been taught to respect not only the game but also the competition they are about to face. Instead they simply go about their business and let their play and/or execution do the all of the talking.
Sirius XM Vs. 300 Million
Sirius XM (SIRI) has many rivals and the last time I checked it had at least 300 million of them (short interest shares, that is). But what makes this rivalry more interesting is that it has presented CEO Mel Karmazin with the type of bulletin board material he needs to succeed - if not for himself, but for those who believe in his company. Many of whom continue to make huge sacrifices to be proven right. This “300 million” continues to serve as his reminder of what the company is up against.
Last week I told you that I felt Mel needed to do a better job this year of managing the stock price. Many of you misunderstood the point that I was trying to make. Shortly after the article’s publication he did exactly what I asked him to do - an announcement that eventually squeezed many of the 300 million to want to cover as the stock broke several key points of resistance on its way to a five-month high of $2.07.
As the chart above shows, Nasdaq’s most recent short interest report suggests that despite Sirius’ recent success, those who have placed huge bets against the company are unwavering in their belief that any level of success can be sustainable. It shows a 13% increase since the middle of November. This has led many Sirius investors to ask, what are they seeing that we are not? The answer is simple: A rough economy. Although it has shown some sign of life, it remains filled with uncertainty.
The Short Bet Against Sirius Longs
Several weeks ago, I reminded you of the axiom that has long been associated with Sirius XM – one that even today still haunts the company. It’s the idea that paying for radio was just plain dumb. So as Sirius continues to defy all logic with its record 540K Q4 subscriber acquisitions, I think this is one maxim that can finally be put to rest once and for all. The fact of the matter is, it appears that the roles have now been reversed. But as consumers continue to enjoy the service and putting aside old myths, it seems there are many Sirius investors that continue to fall prey to the same old ways of thinking.
We are always told by our parents to “think before we act.” This practice has often been the difference between being rich or being poor or even having our freedom versus being incarcerated. But I also believe in the idea that we sometimes “out-think ourselves” toward too many bad situations. The fact of the matter is, this is why the 300 million who bet against the company exist today. But it’s not for the reasons that you believe. While many may look at that number and come to the conclusion that the bet has been placed against the company’s performance, the reality is, it has been placed against Sirius XM’s long investors.
As I have raised the bar this year for the company and will demand for its management to do a better job of managing the stock price, I think it has also become necessary for those who are long the stock to put to rest another old axiom – which is “Sirius investors are unsophisticated.” We have seen evidence of this all over the place whether on message boards postings or comments on articles where the company is the subject. Sirius’ stock is owned by 71% retail investors and because of the perceived level of low intellect or investing acumen, those who short the stock continue to be unfazed by the ability of these 71% to make intelligent decisions.
Changing Our Ways of Thinking
Many Sirius investors have become too preoccupied with “reading between the lines,” many of which are blurred to begin with to the extent that we can’t realistically discern where one line begins and the other one ends. All the while, the stock continues to move with lightning quickness as trades are being executed right in front of our eyes – rendering us too paralyzed to make the intelligent decisions necessary to produce a profit. This is what the 300 million knows.
Those who have 300 million shares to wager or even the type of capital that it requires to finance such a hedge against any company can’t be doing all that badly in the area of intellect. I think this is a fair guess. Because the truth is, if you have that type of capital lying around, it means you likely have had more than your share of wins versus losses in the market. It means that they are smarter than those that they have bet against. But will it continue?
To be completely fair, I believe this to be an inaccurate depiction of the majority. Having said that, there is plenty of evidence to support that which is perceived to be an offensive mark against investors of any company that trades at such a low valuation as that of Sirius. And it’s understandable – because there is a clear difference in decorum between those who shop at Nordstrom or Brooks Brothers versus those who shop at Wal-Mart (WMT) where parents go crazy over video games during Black Friday.
Summary
Today, not only are many skeptics unable to disassociate the company from what it is today with what it almost became in 2009, these same skeptics continue to be unmoved by the momentum the company has recently shown. The one constant throughout all of this continues to be many Sirius investors who have not sought to commensurate the growth that the company has produced with that of their own personal development.
For this reason, I feel the one major cause for such high bets against the stock has less to do with today’s performance of the company and more to do with who the majority of its shareholders are - you and I. This should serve as bulletin board material for Sirius investors to prove these bets wrong - which right now stands at 300 million to 1.
Disclosure: I am long SIRI.
