LESSON NUMBER TWO

A pair of stocks for your consideration:

Sirius Satellite Radio (SIRI)
XM Satellite Radio (XMSR)

I think a very good case can be made right here for a solid trading opportunity.

Both companies are in a prolonged start-up phase and have not yet turned a profit. However they are approaching profitability and continue to rapidly expand their customer base. Most importantly, they are involved in a pending merger which should strongly improve the prospects for future profitability.

Since April of 2007 here is their record:

low high percent gain

SIRI 2.69 3.24 20.4% Current price: 2.74
2.71 3.83 41.3
2.65 3.31 24.9
2.66 3.15 18.4

XMSR 10.48 11.98 14.3 Current price: 11.90
10.52 13.02 23.8
10.55 15.83 50.0
10.22 13.55 32.7
10.80 13.79 27.7

These are both stocks with a solid base or apparent price support level - and they have returned to that level several times over the past year.

Although some analysts put more stock in exact figures, I think they are more subjective and subject to hundreds of individual buying decisions that can have a wide variety of motivations. So I place my base points at 2.65 to 2.75 for SIRI and 10.20 to 10.60 for XMSR. (Note: The intraday 52-week lows for the stocks are 2.51 for SIRI and 9.62 for XMSR.)

BUY STRATEGY: SIRI is at, or very near, a buy point. If you can pick it up a dime cheaper, that
would be nice - but it is now close enough to base support area to be a buy.
XMSR needs to come down another 10 to 15% to be a good buy. It does have
some volitility and bears close watching.

SELL STRATEGY: Sell if either stock goes to a new low. This would indicate that the support level
is questionable and the stock could be a dangerous hold.

Should the stock bounce off its base, as it has done several times in the past 52-
weeks, the stock should be sold on any 10% decline. (Example: Should XMSR
go to 14.00, it should be sold before falling below 12.60, a decline of 1.40 or 10%) Of course,i t may be sold at a highier level, but the 10% decline rule would provide a mandatory exit point. .

To summarize the lesson that I try to convey in my investment course:

A) Always go into a stock purchase with a well defined strategy that has entry and exit points. (These go on a white-board that I can see from my office desk.)

B) When the reason for the buy is no longer in affect, why would you want to continue to hold the stock? (In this case, the stocks have well defined bases. Should either stock go below the base, the logic for holding it gone and the risk becomes significant.)

(This blog was written on April 7, 2008 and stock prices mentioned in the blog reflect that date.)