11+1+1 Errors Robinhood Stocks Investors Make

This year, the number of retail users increased tremendously in the stock market. Allegedly millions of inexperienced, mostly young small investors are streaming into the market. Some weeks ago I made a list about the 11 + 1 Grave Investment Errors Robinhood Newbies May Commit, but one was missing. “You don’t make your homework and choose a mistaken title”. Or, simpler, “you buy the wrong product”.

Everyone makes a mistake. But anyone with less experience or not doing the basic homework is much more often mistaken. Others may invest by intuition without proper analysis. They may choose the product they wanted but at the wrong price. Let’s see the examples.

1st Robinhood Stocks Bubble: Zoom in 2019, and 2020

In April 2019, the video-chat software firm Zoom Video Communications Inc. (ticker: ZM) prepared an IPO that valued the company one billion dollars. But another title, the unrelated Zoom Technologies Inc. (ticker: ZOOM) jumped to $5.7 from some cents. “Soared 56,000 percent”–wrote MarketWatch those days. Some weeks after, Zoom Technologies fell below 90 cents.

So far, so good. But some people never learn–or don’t read so much about past events. Because this year happened the same. In March, because of the quarantine and the spreading of home offices, Zoom video-chat and similar apps got very popular. (Read: 29 Zoom Alternatives and the Zoom Stock Price Explosion.) Zoom Video Communications skyrocketed, but the “doppelganger”, Zoom Technologies, jumped even more. To almost $21 from around $2 in February. To avoid more confusion, the trade was suspended in March. Some later, the ticker code of Zoom Technologies Inc. was changed to ZTNO. (Bloomberg.) This Friday, the stock closed by only 54 cents.

3rd Robinhood Stocks Bubble: Rent-a-Zombie (Hertz)

“Frenzied traders” also piled into bankrupt names in the last weeks. Hertz (ticker: HTZ), the famous rent-a-car company filed for bankruptcy a few weeks ago. Because of the coronavirus “crippled demand for rental cars”. (Source.)

The value of companies in bankruptcy used to fall. So did Hertz stock in May, crashing to $0.5 from $3.0, approximately (red arrow). But later, in a surprising move, the “Robinhood stock” jumped to $5.60, and closed on $1.7. Here, small investors are not mistaken in choosing the stock. But the price can be a problem. “Rent-a-Zombie–Hertz back from the dead”–wrote the Robinhood Snacks podcast.

I know serious analysts are also debating whether the company can escape bankruptcy. And, whether a higher stock price is justified. (For example, here and here.) But if the crisis drags on, the value of the stocks may decline to zero. For now, some bad news is coming about the epidemic from various U.S. states (Florida, Arizona, California, etc.). The virus is attacking again and again also in Asia.

4th Robinhood Stocks Bubble: Chesapeake Energy

The larger US crude oil and gas company, Chesapeake Energy Corporation (CHK) may not be a “Robinhood Stock”. At least Robintrack data is incomplete. (DOU and ZTNO also seem to be delisted from Robinhood.) But Chesapeake Energy walks in the group of the living dead. (I mean, in the group of stocks of companies in bankruptcy jumping high.) The stock fell huge in April with the crude oil price, later with high chances of bankruptcy. But jumped to $70 from $12 in June. (Intraday, to 77.50.) To crash to $13 again, soon.

Here, the short-covering may have been the reason. “Company admits bankruptcy, soars from $7.77 to $77.50. Shorts were massacred”–wrote TheStreet. The stock jumped before the official–but not unexpected–bankruptcy filing. Then crashed after that. A similar case in the oil industry was the Whiting Petroleum stock (WLL).

5th Robinhood Stocks Bubble: JC Penney

JC Penney Company Inc Holding (JCPNQ) also jumped high, to 63 cents from 11 cents in one month. The traditional and also online retail chain is also in bankruptcy, closing dozens of units. The firm is burning cash continuously, and money may run out by the middle of July. But Forbes.com claims three are three buying candidates for the company. (Amazon. The hedge fund investor Sycamore Partners. And a consortium of three, Authentic Brands Group, Simon Property Group, and Brookfield Property Partners.)

“Why are companies lining up to kick the tires and potentially buy JC Penney?”–asked Forbes. They found plausible explanations, the company’s good brand, real estate assets (units in prime malls, and central areas). The valuation of the company is low, stocks fell 72 percent in the last 12 months. (As of June 19, Chesapeake was down 97 percent, and Hertz, 69 percent on y/y basis, by the way.) Is it possible that this is the only stock on this list that still has a stable fundamental value?