Monday, November 3, 2008

Sirius XM is Good and Really Bad

I happen to be in a position that has people, from time to time, asking me about my view on individual stocks. More often than not, as far as I can tell, the asker of the question either owns the stock and loves it, or wants to own the stock and really loves it.

Sirius XM is a great product. I will grant that even though I don't use it. People who have it rave about it everywhere - kind of a good sign that it's a great product.

The Peter Lynch school of investing would tell you that this is a perfect situation to get involved in as an individual DIY investor. You know the product, like the product...

I get asked about Sirius more than any other stock. People really want to love the stock, which has been and will likely continue to be a bad idea. The company has tons of debt, and is hugely leveraged to the U.S. domestic car sales market. Both of those things are bad. The really sinister element is that if a company has too much debt, a low-dollar common share price can be devastating because most individual investors have no idea how easily the common stock can be made worthless if the debt holders step up.

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