Tuesday, January 11, 2005


I continue to receive questions about SIRI radio but I do not take profits on a winner lightly. I like to hold my winners for very long periods of time. However, when a stock explodes up in value based on emotion and little change in the fundamentals, it seemed wise to sell the shares. So far so good. The following is a copy of an email I sent in response to one of the inquiries about SIRI.


There are several points to be made about SIRI. Do I think it will ultimately be successful? Yes. Has it run up to high too fast? Yes. Is it time to buy high beta stocks? No! Are we currently in a market correction? Yes. Is the correction beating down the high flyers more than the low beta socks? Yes. Has the competition made progress and significant announcements? Yes.

I encourage you to read the blog I wrote last night that shows again that defensive issues are doing well. Energy stocks are holding up and consumer staples and health care are starting to show relative strong performance. This is the way one should expect the second half of an economic recovery to play out. People have to buy socks, toothpaste and health services. They do not have to remodel their home or buy a new car and will resist discretionary spending once interest rates rise. The stock market anticipates the change at least 6 months in advance.

The thing that no one knows about SIRI is how successful the other services will become. There are many powerful relationships forming that should give one pause before buying a stock that has no earnings and not even positive cash flow. Comcast, Time-Warner, Cox, Microsoft, Sprint, Verizon, Cingular, HPQ, ESPN, Disney, Apple, Dell and many more companies have announced deals that put them in direct competition with SIRI and XMSR. Read my blogs and you will find that at least a month ago I said if I was forced to buy satellite radio, I would definitely buy XMSR before SIRI. XMSR has three times the customers and even more powerful drawing cards. Traditionally, baseball has been the “big radio sport”. On XMSR, one can tune to every single baseball game to be played all season times two! Let’s say you are a Red Sox fan and your neighbor is a Yankees fan (I understand you both live in Florida). On an XM radio, you could tune to the Red Sox announcer and your friend could tune to the Yankees announcer.

NASCAR fans need XMSR and Howard Stern fans need SIRI. To be fair, NFL fans also need SIRI. Look at the program guides to get the details, but one point is that XMSR is the more solid company of the two. It has more customers and has some extra neat features. XMSR offers a portable radio that can record up to 4 hours of programming. The new auto programming feature will allow one to “build a customized radio station” sans commercials. In other words, the radio could be programmed to automatically switch to CNBC at the times the stock market report is given. Rhapsody is actually the largest digital music station and there are many others. Rhapsody already has relationships established with major players such as Roadrunner and a long list of others. Yahoo has contracts with not one but all cell phone companies. These relationships and services took a long time to build. It must have been at least five years ago when Yahoo purchased Broadcast.com (maybe not the exact name). The really hot product in this category is i-tunes through Apple. Apple appears to be winning the “VHS-Beta Max” war. The kids want to listen to the track they want when they want and radio (even satellite) is old stuff.

Do not buy only the "HOT STOCKS".

A lot of people got into a lot of trouble by buying the hot stocks in the late nineties. It is one thing to own one or two hot stocks but dangerous to focus on them. I must admit that I only realized how hot SIRI was when I was over whelmed with responses from readers. To date, I have had more inquiries about SIRI than any other stock!

Forgive me but I am trained like Pavelov's dogs. If my readers are overly excited about a particular stock or sector, I will automatically back off from that sector. Clearly SIRI ran up on excitement not on fundamentals. It may be a very long while before the stock sees $9 again. I do not plan to short the stock--it clearly does have strong growth potential--but I am willing to make a side bet that the stock sees $5 again before it sees $9 again.


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