Why You Shouldn't Buy Bankrupted Stocks - (The rise in Hertz and Jcpenney stocks)
Hertz, and JcPenney. This name has rung a lot of bell during this pandemic as the company filed for bankruptcy. It is often usual that when a company goes bankrupt, its stocks drop really down to almost nothing but it hasn’t been so for this two companies. Hertz in the last few days, Hertz rose about 500% while JcMorgan went to about 300% and this is strange.
Why will this happen
Why will people buy bankrupted companies shares? Is one question but the very way to answer is to look at the trend in the last few days. With no doubt, the increase in the stock prices of the companies is a pump and dump and this can only happen with the support of traders who are looking at making crumbs from a dead asset.
The stock market is not a playground so it should not be regarded as one but painfully, a lot of people will be stocked in this because of greed. Distressed companies need investors who will invest in their companies and not traders who will immediately close their world on them by further crushing their stock price and not giving them a way to remedy their problems.
Researchers who checked through the trading said it wasn’t done by institutional traders, which means it was done by people who just had a phone or a laptop connected to the internet just like me and you but can access the stock market on their own through online stockbrokers, this people are referred to as retail investors because they handle this things from their homes.
It is true that this rise would have made a lot of money for a few traders but at the detriment of a few people. A lot of them will send this companies to people as signals and this will invite people in. The way signals work, which is the last people that buy at a high price bear the losses. These traders hope that people will pay more for this dead stocks because as they rise, they will catch their attention.
Another question is “who will be holding the bag when this stocks crashes?” In a troubled economy, it is quite surprising to see a rally in these bankrupted stocks so who will be bagging this stocks when the early buyers are now selling off. Definitely, it won’t be me because I did not buy into any of those shares but it might be a few people. Today, the market started dropping and we hope to see where it gets to and what happens to this companies after the market crashes completely.
