Emotion is a dangerous thing in investing. Yes, we've all heard this before, and especially from the bearish camp surrounding Sirius XM (SIRI).
"Emotionally deranged typical SIRI long" has been repeated ad nauseum by the bear camp almost as many times as SIRI longs get to hear about the "new media" space and how anyone bearish on SIRI "gets it."
Sirius XM has been, since Liberty's (LMCA) bailout (or whatever you want to refer to it as), a source of much hype and speculation. Because of this, while Sirius XM has trended up quite steadily over the past three years, it has also been volatile around this trend line. Because of this volatility, there's been ample opportunity for either camp, bull or bear, to throw volley after volley at one another.
Never fail, when the price catapults higher, people get excited and buy into the frenzy. This is no different from any stock out there which receives a lot of attention. Even Apple (AAPL) is not free and clear of such activity. When the stock peaks and drops, there's some panic and much running for the doors. When the stock consolidates sideways on low volume, some people get bored, anxious and look elsewhere. The problems arise when people sell at the lows. People get scared out of their shares, drop them, throw up their hands and say "I'm out! I can't take it anymore!" for no reason other than a stagnant share price or a down day.
I always ask people when they sell a stock the following question: "What changed about the company to make you sell your position?" Sometimes there is good reason such as a poor earnings report, new developments surrounding the company, scandal, a shift in competition, etc. But more often than not the reasons are not particularly sensible. They stem from emotion, fear and random reasons such as "the stock has lost 5% in four weeks" or "it's not going anywhere, this thing is a dud." Yet when asked what has changed with the company, the answer is usually "nothing" or quite often the answer is that the company has continued to improve.
I've noticed this with Sirius XM lately. Sirius XM has been trading in boring fashion. If you bought at the last conference call and held, you would be just about even right now. Had you not taken advantage of trading the swings, $2.11 to $2.41 total range, then you have made very little money ... perhaps 1% or 2%. If you bought on the hype at $2.40? You're currently red. If you bought on the panic at $2.11, you're currently green. If you sold out under $2.20, you're red, and if you sold at $2.40, you're green.
Me? I've tried to remain calm. I have a price target. $2.75, and this is the high end of my range and the point I may strongly consider selling if Sirius XM were at this price today ... $2.60 to $2.75 is sell territory to me. Anything under $2.20 I consider strongly buying. In between? I have to watch behavior and decide whether or not it makes sense to buy or sell the smaller portion I trade with in options. I've recently bought at prices under $2.20 on two separate occasions, looking for a final buy on Monday 4/30 under $2.20. Why have I bought, with the stock seemingly doing nothing and almost 10% off the recent high? Because I'm keeping my cool, and I see no reason to sell my shares at this level.
Yes, one could argue that Sirius XM may have a poor upcoming conference call. But with a recent price increase, conservative guidance, high auto sales, etc., there's just nothing out there that screams "uh oh!" to me. Yes one could argue that the overall market is entering bear territory, but again, I just don't see it. Has there been a correction and some profit taking ahead of most earnings reports? There sure has been. Have companies been delivering? By and large they have, and some of them exceptionally so.
The fact of the matter is, that recent activity in the overall market and in Sirius XM has presented an excellent buying opportunity in my opinion. Sometimes the best markets to buy into are those where people are scared, and those where people are bored and frustrated. We shall see, come the conference call on May 1st, whether keeping cool and maintaining perspective has paid off, or whether those running around saying the sky is falling, and those who have taken shelter under their umbrellas were right.
If history is any indicator, cooler heads will be the beneficiaries and the prevailers longer term. Consider how bored and frustrated people had become in December at $1.80. Consider how scared people had become in October at $1.41. Consider how well off those who succumbed to these emotions would be had they added to their positions and maintained perspective with a 33% to 50% return in a few months. Keep a cool head, keep focused. Has anything changed for the worse with the company?
Additional disclosure: I am long SIRI May and June $2 calls. I am long AAPL May $570 calls.