Steve, maybe the short interest in stocks like SIRI reflects no earnings whatsoever, almost no book value, and a market for satellite radio dominated by XM Satellite. Maybe short sellers also forget some ironclad rules for shorting that would apply not only to SIRI but to SNDK:
1. Never short good management. SNDK management has a good track record. They'll figure some way to deal with key issues, such as the presence of a very large competitor (Samsung). SIRI management is somewhat untested. The company was near bankruptcy until it convinced bondholders to accept stock, thereby diluting potential share earnings. Maybe the short sellers know what to do in the case of SIRI, though not in the case of SNDK.
2. Never short stocks trading below $10. The lower the price, the more risky the short sale because a sudden piece of good news could trigger a buying frenzy and put a squeeze on the shorts, especially if there isn't enough available stock to borrow to maintain a short position.
3. Never short stocks when there is evidence that demand is picking up for the company products or services. A company may still be in trouble, but increases in product revenues have a way of making things look a lot better, not only to investors but to banks and other creditors. This is why a short a position in SNDK in this period of increasing demand for flash memory is, well, just plain silly.
Art |
