Mel Brooks has already made one parody movie entitled Robin Hood: Men in Tights. The year was 1993, and you had Westley from The Princess Bride, Dave Chappelle, and Patrick Stewart all on screen at the same time. Brilliant.
And now, nearly thirty years later, we have a real-life Mel Brooks-ian parody playing out in the stock market. May I present - Robinhood: Men in Tights (the reprise).
Robinhood is an online discount brokerage. Their selling points are zero commissions, fractional share ownership that you can only trade with other Robinhood users, and a tag line that goes something to the effect of: "we'll give you your first stock for free."
The meteoric (but unfounded) rise of the stock market between late-March and early-June coincided nicely with a meteoric rise in new Robinhood stock positions (up over 200% this year). Turns out, day trading is a fun hobby if you're sitting at home with a stimulus check and no sports to bet on! It's even more fun when you think markets can only go up.
The stocks most popular with the Robinhood crowd seem mostly to be the ones that got really beat up in the lockdowns - airlines, cruise companies, etc. Also Ford, GE, and Aurora Cannabis. Not kidding about that last one, it's in the top-10 most popular stocks on Robinhood. I'll save most of the commentary on what I think about such investments and instead just give some facts.
Fact: bond holders get paid before stockholders in bankruptcy. Fact: stocks (equity) go to zero and are worthless in bankruptcy, since the company is bankrupt because it owes more to bond holders than it has in assets. Fact: Hertz filed for bankruptcy in May, and the stock dropped to about $0.50 a share. Fact: it then shot up to $5.50 a share, which is about an 880% gain. On two separate days, it was up more than 100% for the day. For a stock that is quite literally and demonstrably worth $0. Fact: the number of Robinhood users owning Hertz jumped from 43,000 to 73,000...after it filed for bankruptcy.
Ditto for Chesapeake Energy. They haven't officially filed for bankruptcy at the time of this writing, but their senior bonds were trading at about 3 cents on the dollar. Bond holders with an actual claim on Chesapeake assets were only expecting to recover about 3 cents for every dollar lent to Chesapeake. Per the first fact above, that means the equity position in the company is quite literally worthless. And yet, it jumped from $7 to $77 in a week.
Back in March, Zoom Technologies (ticker: ZOOM) was a penny stock that jumped 240% on no news...just people buying it thinking it was Zoom Video (ticker: ZM).
More recently, there was a penny stock for a Chinese company called Fangdd (ticker: DUO) that jumped 1,000% in a day (not a typo) on no news, probably thanks in part to a similar 1,000% (not a typo) jump in Robinhood owners. It came back down the next day. Oops, wrong "Fang" stocks.
The original Robinhood was about stealing from the rich to give to the poor. Unfortunately, it looks like this newest iteration is doing a bang-up job of parodying that as well. If you find yourself tempted to join in with this Robinhood's merry band of men in tights, make sure you hold on to those purse strings.
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