Weekly Walk of Shame: Sirius Syndrome

This Motley Fool series examines things that just aren't right in the world of finance and investing. Here's what's got us riled up this week. If something's bugging you, too -- and we suspect it is -- go ahead and unload in the comments section below.

Today's subject: In these contentious times, too many people cling fiercely to ideas or opinions they've fallen in love with, even when the facts defy them. In investing, this irrational preference for rage over reason manifests itself as a disorder I've dubbed Sirius Syndrome. This malady's not only unpleasant to live with, but can also wreck your portfolio.

Why you should be indignant: The stock market can be highly irrational in the short term, and sufferers of Sirius Syndrome only make it worse. These cultish folks go into attack mode if anybody brings up a bearish premise that dares to contradict the assumptions they hold about their favorite stock, or requires them to expend a few of those wonderful things we call "brain cells" to calmly assess.

Why "Sirius Syndrome"? For years now, the mere whiff of a negative observation about Sirius XM (Nasdaq: SIRI  ) has often drawn an inferno of fiery comments from Sirius fans. Past factual data about Sirius XM's high debt load, its competitive landscape, and its long, very real history of annual losses should never be overlooked in an investment thesis, much less met with enraged insults.

To be fair, this mentality doesn't end with Sirius. Back in 2005, I noted that any negative sentiment about Apple (Nasdaq: AAPL  ) spurred the wrath of the cultists (who slung insults like "You're fat and sad"). At one point, my doubts regarding Talbots' (NYSE: TLB  ) turnaround chances led a supporter to accuse me of holding a petty grudge because I couldn't get my allegedly substantial posterior into the retailers' pants. While that admittedly creative theory gives a whole new meaning to the term "rebuttal," it's not an intellectually valid argument.

In 2007, when I pointed out burgeoning inventories at Crocs (Nasdaq: CROX  ) , and questioned whether Crocs might be a fad, I got called all kinds of names and branded with myriad accusations, including that tired old conspiracy theory, "You're just short." Crocs ended up tanking from about $75 per share to penny-stock territory once its problems became horribly clear.

What now: If you're insulting reasonable people who disagree with your premise, both your portfolio and your ego are likely cruising for a bruising. Hubris and overconfidence can ruin an investor. Sure, I was happy to see that my pick for Best Stock for 2009, Starbucks (Nasdaq: SBUX  ) , was the second best performer after Amazon.com (Nasdaq: AMZN  ) when we revisited the series' returns in December. But that performance might owe more to the 2009 market rally than any particular genius on my part. And judging by my current CAPS score, I am definitely not always right. (Who is?)

Embracing a diversity of opinions, rather than marching in intellectual lockstep along a single narrow course, helps investors create a more robust market. Michael Mauboussin, author and chief investment officer for Legg Mason, has argued that when markets lose this cognitive diversity, they're more likely prone to sink into excess -- and create opportunities for savvy contrarians. Wouldn't we all rather be on the profitable side of that divide?

Mauboussin has also championed the importance of diverse thinking in generating excess returns. He cites empirical evidence from psychologist Phil Tetlock's study in the book Expert Political Judgment, in which predictions made by 300 experts over a 15-year timeframe showed a disappointing tendency to fall flat. However, trends within that data revealed that people with more diverse thoughts and opinions made better predictors.

If you're thinking just like the crowd -- and unable to process or accept differing points of view -- you risk making grave and significant misjudgments about your stocks. Add emotion to the mix, and, well, look out below!

I'm not saying everybody should always agree with me, or with anybody else. We should celebrate differences of opinion, use critical thinking to assess the data at hand, and then make up our own minds (or maybe even change them). And in all fairness, people who invested in Sirius, Talbots, and Crocs at their lows, despite others' bearishness, have enjoyed price appreciation. If you're right, the long haul will prove it.

Shame on investors whose cultish zeal leads them to outright reject rational arguments -- and to insult, threaten, or otherwise hate on anyone who disagrees with them. Personal insults and fabricated theories just aren't polite. More importantly, they can cause big trouble for your portfolio when all is said and done.

Alyce Lomax owns shares of Starbucks. Apple, Amazon.com, and Starbucks are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters free for 30 days. The Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2010, at 1:56 PM, ORLIK777 wrote:

    Another attempt to bash SIRI,

    what a bunch of jelaousy driven fools!

  • Report this Comment On March 17, 2010, at 1:59 PM, lemoneater wrote:

    Alyce, good article! Any stock worth its salt should be able to stand up to some constructive criticism. Since I'm a buy and hold investor who usually likes to hold stocks for a couple years at least, I avoid certain stocks that can be fad ruled as much as possible. For instance, I will leave clothing and restaurants to those who are more nimble investors than I am. Fads can change as rapidly as weather in SC. Hope your day is sunny!

  • Report this Comment On March 17, 2010, at 2:50 PM, noryakerson wrote:

    This is not a bash. Sirius is a seriously flawed company. Dig into their financials and it's a prudent investor's nightmare. If you want to put money into siri and call it a speculative play, I have no problem with that. You want to call this an investment, all i can say is you need to do a whole lot more due diligence. There are hundreds-upon-hundreds of well-run companies out there that make for real investment potential. I'm sick of Sirius fans getting so irate when someone gives a negative analysis of this struggling business. Plain and simple, this is a penny stock. Like most pennies, chances are it's heading for the dumps.

  • Report this Comment On March 17, 2010, at 3:00 PM, Turfscape wrote:

    I don't follow Sirius XM, but I know first hand that it can be extremely frustrating following the stock of a company with a cult-type following: HOG, AAPL, BRK.

    There are lovers and haters everywhere. It amplifies the noise to a level that can be hard to wade through when looking for information and data. But, ultimately, these cult follwings are a sign of consumer passion, to one degree or another. Depending on the tone and depth of the cult's response, it can really be a sign of a moat for that company. Really, how far can Apple fall with the rabid fans they have at their core? How much wrong can Buffett do when so many worship his advice and follow in his footsteps?

    Now, that's not necessarily a recipe for solid growth, but as frustrating as it can be to deal with the cults, they sure can be some exciting companies to follow!

  • Report this Comment On March 17, 2010, at 3:51 PM, DJDynamicNC wrote:

    I hope Orlik is being ironic.

    At any rate, the point of the article was not to bash Sirius - Alyce carefully avoided calling SIRI either up or down - but rather to highlight that there are people who resist judgement calls from other people viscerally rather than intellectually. Just as a scientist risks becoming to attached to a beloved theory and can begin to try to force the facts into the conclusion (borrowing a page from their creationist rivals), so too can an investor risk becoming to attached to a pet stock or their own personal vision of a company. Unless you run the company, there are no guarantees it will go the way you see it going, and maybe not even if you do.

    Turfscape, you do raise a good point that the cult followers can be a good sign in some situations, though I would say it's good to notice them but not good to be one, which I believe is also what you're saying.

    As an aside (and I should probably not even make this comment, but oh well) I'm somewhat bullish on SIRI over the long term. I think there are a number of factors pushing it over the hump and positioning it for slow, steady growth over the next couple of decades. I rate it a calculated gamble, worth dumping a couple hundred dollars into. Should be a fun ride at any rate, as long as you're not banking your savings on it.

  • Report this Comment On March 17, 2010, at 3:55 PM, ScottEKearns wrote:

    Sirius will use the proceeds to redeem its 9.625% senior notes due 2013, to prepay in full all of the borrowings under its senior secure term loan that matures in 2012, and to pay fees related to the offering. Not to mention the following:

    March 14, 2010

    CORRECTING and REPLACING -- Quarterly Changes to the NASDAQ Q-50 Index

    NEW YORK, Mar 14, 2010 (GlobeNewswire via COMTEX News Network) -- In a release published on March 12, 2010 under the same headline by The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ), note that the company name and ticker symbol for Sirius XM Radio Inc. (Nasdaq:SIRI) were incorrect. The corrected release follows:

    The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) announced today the results of the quarterly reranking of the NASDAQ Q-50 IndexSM (Nasdaq:NXTQ), which will become effective with the market open on Monday, March 22, 2010.

    The following eight securities will be added to the Index: Amylin Pharmaceuticals, Inc. (Nasdaq:AMLN), Gentex Corporation (Nasdaq:GNTX), Lincare Holdings Inc. (Nasdaq:LNCR), Micron Technology, Inc. (Nasdaq:MU), Rambus, Inc. (Nasdaq:RMBS), Sirius XM Radio Inc. (Nasdaq:SIRI), Vistaprint N.V. (Nasdaq:VPRT), and Windstream Corporation (Nasdaq:WIN).

    The Index is designed to track the performance of the 50 securities that are next in line to replace the securities currently included in the NASDAQ-100 Index(R). The NASDAQ Q-50 Index is reranked on a quarterly basis. For more information about the NASDAQ Q-50 Index, including detailed eligibility criteria, visit https://indexes.nasdaqomx.com/.

    It looks like the uptrend and upgrades are again just beginning with the Subscriber growth and the increasing of positive cash flow. SIRI is making good on its growth for two years in a row. It looks like another 500% gain is in site from winter into spring in 2010 like SIRI had in 2009. Rising out of the ashes, it is almost Biblical!

    Scott E Kearns

    A.K.A. Important Update

  • Report this Comment On March 17, 2010, at 5:26 PM, SIRIDoom wrote:

    I agree SIRI fans can be nuts...

    Good service with a leach on its back...

    Mel KarmaCrook and Goldman Sachs crooks...

  • Report this Comment On March 17, 2010, at 6:35 PM, ImaWright wrote:

    Yes I am a Lomax Basher; it is not by choice but by the simple fact she takes credit for analysis she has never done. She says she warned everyone of Crocs inventory issues in 2007 and yes they did have them. However it was not Lomax sounding the alert but it was the warning of true financial analysts that pointed this out she was only riding on their coat-tails. Please look back through all of the Lomax “commentary” and point out any real financial analysis… there is none. I agree that Crocs will never be a $75 dollar stock again but it should have never been one in the first place; you can thank people like Lomax who tout themselves as experts then over hype things one way or the other skewing the truth or simply inventing it just so they can continue to collect a pay check. Crocs could easily be a $35 to $45 stock and seems to be well on its way to getting there.

    Lomax wants to take a look back and say “I told you so” so let’s do that. In the 2nd quarter of last year Lomax was again riding someone else’s coat-tails stating Crocs had $19m in debt, can’t secure a line of credit and would be out of business by September. Let’s recap what really happened. At that time Crocs had $50m in cash and by the third quarter completely paid off their debt as well as improved their cash holdings to $70m and secured a line of credit. Despite this fact Lomax continues to bash Crocs fixating on the past and the over-inflated stock price stating they won’t get back to $75…. DUUHH! Lomax it is not 2007 anymore it is already 2010 and a lot has happened since then; where have you been? Crocs has climbed out of a hole with a 52 week low of $1 and now is around $8. If my math is correct that is a 700% profit and at a dollar a share you can buy quite a few shares. Crocs inventory is under control, sales are up, new management is in place, and the product line becomes more diversified every season. Crocs is well positioned to be a $35 to $45 dollar stock, a good value for a company of its size. The question now is do you continue listening to Lomax spew facts from other analysts making her evaluations on what she thinks is fashionable versus hard data causing you to miss out on another 700% plus return on your investment or ignore her unsubstantiated opinions and let her seek employment elsewhere like writing for Cosmo where she belongs.

  • Report this Comment On March 17, 2010, at 8:34 PM, Clint35 wrote:

    I don't get why SIRI lovers even come to this site. This site is all about learning how to be a good investor. How to value investments on your own without professional help. But those people clearly need professional help. They are not at all objective, and defend SIRI like they're talking about their favorite band, not an investment. A 2 star stock selling at less than $1.00 can't be a good investment. Same problem with CROX lovers. Have any of you made a profit on your investment in SIRI? Anybody, who wasn't shorting that is?

  • Report this Comment On March 17, 2010, at 8:42 PM, Clint35 wrote:

    ImaWright, I'll keep listening to Lomax. There's no way CROX is going to be a $35 stock. Going from $1 to $8 happened to a lot of terrible companies. It's called speculating.

  • Report this Comment On March 17, 2010, at 9:06 PM, mattm09 wrote:

    Is there something wrong with you? First, you degrade SIRI (and other companies) investors for being "cultist" and then you make fun of anyone who had invested in SIRI. Perhaps you are correct that some people are over jealous about SIRI; however, you are over jealous in your hatred towards SIRI stock. So, what is the difference. I will let you know that I have made money on both stocks. My first shares of SIRI was bought around 3 dollars per share and now I have an average price of 65 cents per share. My first share of CROCS was at 21.xx (on the way down from 70.xx) and now I have an average of $6.86. It is quite amusing that you bash these stocks endlessly (sorry about your shorts--not) while at the same time complain about the investors in these stocks as being too "cultist". Wishing a company go out of business is bad Karma (because of loss of jobs, etc.). You would be much better off finding a stock that you like and go long in that stock.

  • Report this Comment On March 18, 2010, at 2:50 AM, FleaBagger wrote:

    I find it hard to believe that all these people are Sirius. (Get it?) I think they're just yanking your chain, Ms. Lomax.

  • Report this Comment On March 18, 2010, at 9:40 AM, ImaWright wrote:

    Clint35 it is your money to loose, your retirement plan must be a job as a Walmart Greeter. You seem to be a supporter of her's so maybe you can help me... can you cut and paste into the comments one bit of true financial analysis from ANY article she has ever written.................. I didn't think so!

  • Report this Comment On March 18, 2010, at 11:02 AM, catoismymotor wrote:

    Sirius reminds me of Blockbuster. I worked for Blockbuster once upon a time. While I was there Ayn Rand was a Manager. She had a nickname for me: Fountainhead. She even had a name badge made for me that read Fountainhead. She was a nut.

  • Report this Comment On March 18, 2010, at 2:25 PM, mountain8 wrote:

    Anybody who cares to can scan SIRI's balance sheet does so with a slight shiver. There are very real problems, they are making very real progress, they are still teetering. Nobody really knows where they will end up.

    That said, I own a bit of SIRI, but I don't call it an investment. I don't even call it speculation. I call it a gamble. At this point it is a better gamble than the lottery but not quite as good as blackjack.

    That said, somebody has to be first. I think SIRI has the potential to be another first. I never thought people would ever pay for cable/satelite TV. I may have been wrong. I didn't think anybody would pay $600 for a telephone. I may have been wrong. I really don't think anyone will pay for satelite radio. I hope I'm wrong again because if I am, my gamble will pay off quite well.

  • Report this Comment On March 18, 2010, at 3:29 PM, DJDynamicNC wrote:

    @Mountain8 - exactly right. Sirius is a fun gamble and nothing more. Throw down a few hundred and enjoy. Don't build your portfolio around it. I am cautiously optimistic, but you're right, there's no way to tell right now.

  • Report this Comment On March 18, 2010, at 4:37 PM, stan8331 wrote:

    Being willing to consider a wide diversity of opinion and having the ability to think counter-intuitively are critical tools for investors. One thing that's become even more apparent to me lately is that what matters is risk management and mitigation for my overall investment portfolio - not so much for any specific individual investment. Some investments that would look insanely dangerous in isolation can become perfectly reasonable as part of a vastly larger whole.

  • Report this Comment On March 19, 2010, at 3:25 PM, TMFLomax wrote:

    Thanks everyone for the good discussion here. And yes, if some folks invest in some of these companies knowing how speculative they are -- well aware of the risks at hand -- well, I don't have a problem with that. Although speculation does make me nervous and I don't like to invest that way myself, at least an awareness of that means the issues and risks aren't being overlooked (which obviously I worry happens way too often as is the theme in the article).

    ImaWright, anyone can go back through my bio and see everything I have written on Crocs over the years, but the fact that Crocs' auditors issued a going concern warning, disclosed in Crocs' 10-K for the year ended 12/31/2008, was absolutely and positively a sign (among many) that investors should have taken very, very seriously relating to how risky it had become.

    http://www.fool.com/investing/value/2009/03/18/going-going-g...

    Here's the SEC filing, page 13, if you'd like to double-check:

    http://www.sec.gov/Archives/edgar/data/1334036/0001047469090...

    Sure, sometimes people can get incredibly lucky if some of these risky companies make it through. And as for the future, we shall see. Some more speculative stocks like Crocs still have their work cut out for them even if they make it through the worst of times.

    Thanks again for the thoughts being shared here, everyone.

    Alyce

  • Report this Comment On March 20, 2010, at 11:37 AM, wordcarr wrote:

    Sirius Syndrome-- like that--Well written Mr. Lomax.Sirius Syndrome is what has kept me returning to MF.I would scan MF on line from time to time but read little.As a investor, I am a bottom feeding,contrarian that considers myself, the last to know.Sirius appear on my radar along with links to your articles.Greatly entertained by what you now deem Sirius Syndrome, I elected to sign-up to comment at MF. Pour a little gas on the Sirius Syndrome,if you will.To my reading pleasure the Sirius Syndrome nomes attacked,great fun, but of little value in making decisions. I had hope to gain some useful insight here,however MF is loaded with Sirius Syndrome types.I like your style and will continue to be counted as a advertising view at your blog of the Sirius Syndrome people.

  • Report this Comment On March 03, 2011, at 7:41 PM, mjturner1 wrote:

    So, a year later I write this:

    @Clint35

    I, and many others, have made a substantial profit on SIRI.

    Maybe the recent ~100% climb is driven by the overall recovery, but nonetheless Sirius 2.0 rolls out soon and with the equipment becoming standard in many new cars it seems to be investing in its own future

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