Robinhood investors have shown a penchant recently for trying to buy low on a number of different securities. They've done it with oil, buying up the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil Fund (UCO). They've done it with airline stocks and the U.S. Global Jets ETF (JETS).
Now, they're trying it with Hertz.
Despite the fact that the company just declared bankruptcy and the stock price has plummeted 95% in just a few months.
Now, Hertz isn't what I'd consider the best candidate for a buy-the-dip trade. In fact, it's probably one of the worst. In the lead-up to its bankruptcy filing, Hertz claimed $19 billion in debt, lost $58 million in 2019 and has laid off or furloughed 25% of its employees.
And let's not forget that the stocks of companies that file for bankruptcy usually up end worthless.
But that hasn't stopped Robinhood investors. And they're adding Hertz to their portfolio in droves.
In February, there were roughly 1,000 accounts that held Hertz. Today, that number is nearly 60,000. Most of the accounts that added Hertz over the past several weeks have been buying just as the stock has steadily decreased from around $8 a share to its current $1 per share price.
Most of these accounts are probably sitting on losses of at least 50%.
They apparently also thought the bankruptcy announcement was an especially good time to get in. The number of accounts holding Hertz jumped by 15,000 right after the filing.
The lesson here is don't try to catch falling knives and don't invest in bankrupt companies. I imagine many of these folks are envisioning landing a 10-bagger on the rebound, but, in most cases, they're just going to see massive losses.
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