It sure would be nice if the markets were as simple as fishing. Sunday, my daughter, Julia and I spent the morning on the shores of Lake Minnetonka enjoying a blue sky day and crystal-clear water searching for the elusive Sun Fish.
We found exactly one, but it was a big one and we did have lots of nibbles!
No matter, it was an entirely thrilling day. We had lots of fun angling, although I think Julia was more impressed with the float plane that landed nearby.
OK, I admit it. I thought the float plane was pretty cool, too.
Most striking though was that the process of fishing was so simple. We bought our worms at the bait shop, set up shop on the shore, filled our bucket with water, put the worms on the hook, threw our lines in the water and waited patiently for the result.
Investing in the stock market is no longer that simple.
The increase in the noise on a day-to-day basis has made it incredibly difficult to have much success in the markets. Imagine having any luck fishing with dozens of motor boats and jet skis circling your lines?
It wouldn’t work very well would it? Essentially the noise makes it difficult to value anything in the market.
Take for example one of my favorite stocks, Sirius Satellite Radio (SIRI). Nearly a year and a half ago, a lifetime in trading terms, the company announced its intent to merge with competitor XM Satellite Radio (XMSR).
What was at the time a brilliant move and culmination of a winning strategy, SIRI was poised to break out of destructive competition into profitable operating conditions. To the winner goes the spoils, correct?
Wrong!
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In this case the winner was encumbered by government hog wash. Under the guise of protecting the consumer, the Justice Department and the Federal Communications Commission (FCC) conspired against SIRI to protect the interests of lobbyists and their traditional media corporate clients (see also, “XM-Sirius Merger: Regulatory Bull.”)
Instead of celebrating its victory SIRI embarked upon a course of defending the merger that was rewarded with a destruction of nearly half its market value.
Wow, government at its best. The whole deal has become such a mess.
Today, the chairman of the FCC, Kevin Martin, indicated he was finally supporting the deal in return for a handful of concessions. Those concessions are said to include allocating 24 channels to non-commercial and minority programming and a 3-year freeze on prices.
Unfortunately, the approval is coming a day late and a dollar short. The damage to the satellite business as a result of the delay has been extensive.
Will SIRI recover? I believe they will, but there is a ton of sorting out to do here making the prospects for investors difficult in the short-term.
Mergers are difficult to value to start with. Add in this extra long delay and the fact that the economy has now slipped into a slow growth period or worse and the ingredients are in place for short-term losses.
My best advice is to stay the course if you are a long term holder of SIRI. Do not be disappointed if the stock fails to rally on the news. It probably won’t.
I am confident that once the dust settles, we will see the SIRI rise to currently unanticipated heights. Once the deal is approved I want to wait 6-12 months to see where the company goes with respect to customer acquisition costs and growth projections.
Nobody knows how those things will shake out at the moment. Once we have some clarity it will be a bit easier to value the company. Until then, we believers in satellite radio and its potential, need to wait a bit longer for our fish to bite.
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