The Five Dumbest Things on Wall Street This Week: Nov. 30
5. AMR Insanity
We here at the Dumbest Lab have long deemed buying airline shares a dubious enterprise considering the sky-high rate of bankruptcies in the sector. Investing in flat-out bankrupt airlines like AMR (AAMRQ.PK), well, that's just plain dumb in our opinion.
Not that it's stopping a select group of schmucks mind you.
As pointed out by TheStreet's eagle-eyed airline reporter Ted Reed, shares of AMR Corp., the parent company of American Airlines, popped nearly 18% Tuesday on heavy volume, despite the fact that the stock is all but worthless. AMR traded up 8 cents to close at 53 cents, its highest price since Aug. 17. By contrast, shares in Delta (DAL) and United (UAL) were flat.The New York Stock Exchange delisted American, which had traded under the AMR symbol, on Jan. 5. Trading then moved to the OTC Bulletin Board and Pink Sheets Electronic Quotation Service with the shares getting a new symbol, AAMRQ.PK. Nevertheless, while the company's stock now trades on the pink sheets, the shares are anything but in the pink. The existing shares have no intrinsic value and are certain to become worthless when the American bankruptcy case ends. "It is possible that some traders believe AMR shares may benefit from the possibility that American pilots will approve a tentative contract agreement that has been endorsed by the Allied Pilots Association," theorizes Reed. "The miscalculation here is that pilots will receive newly-issued shares, not the ones that currently trade." Some long-time Dumbest readers may remember that a similar phenomenon occurred following GM's (GM) bankruptcy, when shares of its post-bankruptcy shell company continued to trade under the moniker Motors Liquidation. A slew of misinformed investors drove over the cliff in that case, convinced until the very end that their GM shares had actual value. This time, however, the suckers are leaving on a jet plane. And we know full well they won't be back again.
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