My 100 Hertz Shares Gain Traction
Last week Hertz sunk back to .80 before launching to $6.83
I have been away from the computer for the last few days and have missed a lot in terms of Hertz updates. After news spread of Carl Ichan’s exit at a $1.6 billion loss, Hertz took another dive back down to .80 per share. Negativity around the company began to rise again and speculation suggested that the surge above a dollar per share was a fluke.
However, airline schedule announcements to end last week sent Hertz and much of the booking industry on a rapid move. Hertz in particular rose to over $2 a share Friday. Before I could update you on either of these movements, something else happened: Hertz exploded, gaining just under 140% on Monday.
To be clear, I am NOT suggesting that Hertz is a buy. I would not currently buy more. At .60 it was a risk, but a manageable one. At that price it operated like a penny stock — massive risk, but subtle movement can create major return. Since the company is worth more I was willing to take it on. Up 1000%, the stock represents an unmanageable risk that no one should buy into with bankruptcy looming overhead.
This movement brings Hertz back to its March/April pricing (before the bankruptcy filing in May) and presents a great learning opportunity for our study. Should I sell now? The $58 spent two weeks ago has grown to a $683 value, netting a 1077% increase.
Some investors might, but I won’t sell yet — for two reasons.
The first is obvious. I believe that the stock is worth more, and am willing to risk my initial investment for that higher value. My rough estimate places its value around the $12 mark, about double its current. Once again, I am not a professional broker. This peg is based on instinct and experience trading the particular stock and my individual risk tolerance. It does not mean that I intend to buy more in the hopes of doubling any additional investment.
Second, and more importantly: I also want to continue providing this learning opportunity. Both for myself and others. If I sell today, I’ll make a tidy profit but I won’t see the study out to its conclusion. There are some significant opportunities baked into this experiment to grow as an investor and I hope to provide them to anyone interested over the long term. I expect to hold these shares for months, not weeks.
The first thing to remember when approaching a major surge like this is the fact that gains in the market are artificial until you set them in stone. My Hertz shares are worth $683 if I decide to sell them now. Otherwise, they are nominally valued at that price. This is the same as warehouse stock. You may own a dozen boxes of cool new T-shirts that sell for $20 apiece, but until you actually sell them you possess a theoretical value — and of course a lot of T-shirts.
My shares are theoretically worth the current price, but if I chose not to sell them that price operates only as a guideline for what they could be worth. The power of the stock market to grow wealth rests on this principle. Demand is theoretically always present, and you can chose to sell at whatever the going rate. This is based purely on expectations that your particular commodity will rise or weaken over time.
This brings us back to the questionable nature of Robinhood’s platform. Iv’e written about using Robinhood before. The short version: ‘use with caution.’
I bought the shares on this platform, after users on Robinhood demonstrated a mass movement toward Hertz shares in early April at a 5 or 6 dollar tag (according to Business Insider’s Matthew Fox). I owned a few shares prior to the collapse and had made a few bucks on price uncertainty in mid March as the market began to slow its freefall. This is how I was turned on to the ridiculously low price point when markets opened Monday, 26 May. I was familiar with the Hertz stock and knew that there could be an opportunity for growth here.
The issue at play is Robinhood’s reporting mechanisms. The app and webpage include recent headlines in a stock’s ‘profile’ page, however these are often delivered days after their usefulness ends. the $16 million payout to C-level executives, Carl Ichan’s exit from a 40% stake in the company, and airline route expansions all were added to Robinhood more than a day after I had uncovered the information elsewhere, and importantly after the price had already responded. Robinhood users relying purely on the platform for trading news will have missed each of these major price drivers and the opportunity to buy or sell before or as significant change occurs.
What this means for Robinhood investors is a little extra work. You have to do your reading elsewhere, even if you just Google “Hertz stock,” or “XYZ stock.” Real time information is what gives investors an edge in the marketplace, Robinhood’s news feed cripples them.
Today (09 June), the three stories featured by the platform are from MarketWatch and the Wall Street Journal that appear fairly positive. But a Google search for the same information might produce a different reaction. The first story I read this morning was from the Motley Fool that claims Hertz is $19 billion in debt, with the vast majority in secured loans tied to its fleet (the second was Matthew Fox’s Business Insider piece). I knew this already and the massive debt factors into my risk assessment. Most investors on Robinhood likely don’t, because it hasn’t shown them the other side of the coin.
Robinhood’s “Analyst Ratings” also places the company at an 83% hold (17% sell). Devoid of a fair price indication, p/e ratio for Hertz, or any other helpful information, Robinhood’s users are left to their own devices to figure out what to do with the shares they likely bought before the crash — at a price mirroring its current.
I intend to hold on a while longer because I believe there is still room to expand — and room for my investment to blossom even further without incurring additional risk above the original $58 ‘bet.’ But I will also hold the shares because in the current surge, they provide a great lesson in fundamentals. Selling — or buying — in a panic leads to hasty decisions you will later regret. I believe in the chance of more positive growth, so my risk is still worth it.
There is a very good chance that Hertz will sink all the way down to zero. If this happens I’ll kick myself over the opportunity to have cashed in, but I’ll move on to the next opportunity with greater selling insight.
