Satellite Radio Faces Enormous Challenges

It is not my intention to get anyone to buy or sell Sirius Satellite Radio (SIRI) or XM Satellite Radio (XMSR). It is only my intention to help investors understand the full picture regarding the risks to satellite radio.

Up to this point, I feel Wall Street has presented the only positive picture. In response, I have offered what I feel to be the missing piece to the puzzle. After considering both sides, it is up to you to determine what to do. Those who get upset and make personal attacks are only confirming the insecurities underlying their investment decisions.

Typically, when a person has few investment ideas or capital, they tend to focus on the noise surrounding one or two investments they hope will make them rich, wasting several years of their lives to no avail, while better opportunities pass them by.

As it turns out, the big picture has not changed much since 2005. The major change is that the economy is in much worse shape. In addition, this doesn’t stand to benefit SIRI, XMSR or the possible merged entity.

I have mentioned many times that investment in distressed securities is one of the most risky and difficult challenges that an investor can undertake. In my opinion, it should be restricted to only the most experienced investors who are able to withstand complete losses.

Although I consider SIRI and XMSR to be only moderately distressed, after assessing the business dynamics and competitive threats, I can see no solid reasons to take a position in either SIRI or XMSR.

Bottom line: this is not the type of market that investors should be taking excessive risks. Preservation of capital is the most prudent choice during economic contractions.

Understand the Industry Dynamics

Having a subscription to Sirius and “loving it” does not mean you have a good understanding of the growth potential or risks to the company. Following the daily rumor mill doesn’t either. In addition, taking a large position in a relatively distressed security only causes one to become emotionally attached.

In order to understand my prognosis for the satellite radio industry, you need to consider basic industry dynamics. This will allow you to estimate the probabilities of earnings growth and the ability of...