Why Robinhood Investors are buying Bankrupt Hertz Stock | Seattle Real Estate Podcast

Rookie Robinhood investors are buying bankrupt Hertz stock. This will end in tears says billionaire Leon Cooperman for these investors.Show more

Find out why investors are pumping millions of stock purchases into a zombie company like Hertz that is teetering on complete insolvency.

Join Sean Reynolds, host of the Seattle Real Estate Podcast as he discusses what is behind this investor phenomenon.

Billionaire investor Leon Cooperman has predicted a stark reckoning for amateur investors who are piling money into stocks with commission-free apps like Robinhood.

'They are just doing stupid things, and in my opinion, this will end in tears,' Cooperman told CNBC on Monday, referring to a flood of new retail investors into online brokers, in particular the millennial-favored Robinhood.

Since launching in 2015, Robinhood has attracted over 13 million active users, with a median age of 31.

Traditional investors such as Cooperman sneer at the amateur traders, pointing to bizarre price movement in shares of bankrupt Hertz driven by retail investors, as small individual traders are known in the industry.

Data from Robintrack, a site that tracks activity on the Robinhood app, showed Hertz was topping the leaderboard for highest changes in popularity among retail traders.

Hertz's shares have risen 250 percent since June 4, even though their value is likely to be wiped out by the end of its bankruptcy process as creditors take over the U.S. car rental company. The shares soared as much as 680 percent last week.

Robinhood traders are betting on how high they can push the stock before it collapses.

Record savings, stimulus checks, low interest rates and even lockdown boredom in the wake of the coronavirus outbreak have all been cited by market pundits as possible explanations for the extraordinary move.

'The gambling casinos are closed and the [Federal Reserve] is promising you free money for the next two years, so let them speculate,' Cooperman said, referring to the central bank's ballooning balance sheet.

'Let them buy and trade. From my experience, this kind of stuff will end in tears,' Cooperman said.

Some market watchers attribute the astounding rebound of equities from March lows to the surge in cash from retail investors.

The rise of mom-and-pop traders has resulted in other puzzling moves in share prices.

Last week, an obscure Chinese online real estate company's American depositary shares jumped as much as 1,250 percent.

Market watchers attribute the surge to retail investors confused about the company's name, FANGDD Network, which is similar to the FAANG acronym used to describe tech giants Facebook, Apple, Amazon, Netflix and Google.

FANGDD issued a statement on Wednesday warning investors the trading price of its ADSs 'could be subject to significant volatility for various reasons that are out of the company´s control.'

Robinhood's website said at noon last Wednesday 9,417 of its users owned FANGDD, up from 4,002 shortly after the market opened. By midday the stock was down around 50 percent.

'In my 20 years of experience I've never seen retail traders push stocks around like they're doing right now,' said Dennis Dick, a trader with Bright Trading LLC. 'When the retail rush comes into something, it can really move.'

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