‘God told me to put money in Hertz’: small investors are making big again
Many small investors are beating the pros on Wall Street at their own game.
A basket of stocks favored by individuals has outperformed the market as a whole since March of last year, according to Vanda Research. This group, which includes behemoths like Apple Inc.
and Tesla Inc.
alongside the electric vehicle manufacturer NIO Inc.
and the digital payment company Square Inc.,
gained 68% from early March 2020 through Monday, far outpacing the S&P 500’s rise of around 36%.
And even stocks popular with individual investors were once again in tears. Shares of cinema operator AMC Entertainment Holdings Inc.
jumped 36% on Thursday, continuing a string of double-digit gains that pushed them to $ 26.52, their highest close in four years. The recent rally in AMC stocks has catapulted them above the levels recorded during the initial retail frenzy in GameStop Corp. and other actions in January. On Thursday, AMC was the most traded stock in the US market, according to Dow Jones Market Data.
GameStop rose 46% this month, far outpacing the S&P 500’s 0.5% gain. Shares of Hertz Global Holdings Inc. nearly tripled in May.
Short sellers betting against GameStop, Hertz and AMC – a group targeted by many small investors who favored these stocks – have lost nearly $ 9 billion this year, according to data provider S3 Partners.
“It feels good,” said Daniel Shin, a 35-year-old individual investor based in Edison, NJ, who bought shares of AMC in January and has strengthened his positions since. “We have the impression that we are against them. Like retail versus Wall Street. “
This year’s reversal has rivaled the financial industry and fueled a surprising revival for some seemingly moribund companies, helping AMC narrowly avoid bankruptcy and paving the way for GameStop to raise funds by issuing shares. These episodes were the ultimate victory for small Main Street investors who are often ridiculed in the markets as “stupid money”.
Meanwhile, hedge funds – the “smart money” of years past – continued to perform poorly. From January to April, a weighted index that tracks the after-fee performance of about 1,300 hedge funds climbed 8.7%, according to data provider HFR. This lagged behind the S&P 500, which rose 11% over the same period.
The market turnaround, with a sustained rally in small companies with fragile finances and easy fortunes made by some first-time buyers of these stocks, does not make everyone happy. Analysts and portfolio managers point out that the market meltdown of 2000 and 2008 was preceded by roaring bull markets in speculative areas such as dot-com startups and mortgage finance. When these fads ended, the economy as a whole paid the price.
Millions of individual investors entered the market last year, drawn to commission-free brokers and easy-to-use investing apps, and their interest helped fuel the post-pandemic rally. That, and the fervor with which many small investors have piled up to become market winners, has potentially paved the way for some serious sell-off if frightened investors drown in droves from hot stocks.
Part of this is because they are riding one of the most powerful forces in the markets over the past year: aggressive investing or buying assets just because the price goes up. Rising asset prices, from dogecoin, a cryptocurrency created as a joke, to Hertz shares have attracted buyers, whose demand has driven prices even higher. This, in turn, attracted even more buyers, in part because of behavior dubbed FOMO – the fear of missing out.
Data from Vanda Research shows that individual investors tend to invest significantly more money in stocks with high momentum than low momentum.
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Paktra Som, a 35-year-old Los Angeles-based pilot, said he entered the dogecoin market in 2019 and has continued to buy since then, looking to continue his ascent. Dogecoin has skyrocketed over 6,500% this year despite a recent pullback.
“If there’s a big increase in the volume of something and there’s a clear trend in the direction it’s going… the result is generally rewarding as long as you know when to sell,” Mr. Som said. “Dogecoin did not have a solid foundation for [base] my investment strategy on. But the volume of buyers was still there. “
Other investors do not follow the volumes or dynamics of transactions. On the contrary, they rely on their instinct.
“God told me to put money in Hertz,” said Damien Roscoe, a 42-year-old electronics technician in Glenwood, Ill. “I know this sounds crazy.
Mr. Roscoe says he made about $ 8,000 in profit buying Hertz stock this spring.
The car rental company has become one of the most unlikely success stories. Hertz declared bankruptcy last year as coronavirus lockdowns and travel restrictions devastated its business. Financial professionals became concerned when individual investors bought the shares, warning that shares of insolvent companies generally end up being worthless.
But buyers had the final say after a bankruptcy court approved a winning auction this month in which Hertz shareholders would get more than $ 7 a share. The stock was trading below $ 1 in March.
“Everybody was, ‘you are all stupid for buying stock in a bankrupt company,’” Mr. Roscoe said. “But driving … I just believed it.”
A sign of the power of the stock race meme like Hertz, investors who did not own GameStop shares this year would have lagged the Russell 2000 Value Index by nearly a percentage point, even if they held all the other actions of the gauge. until Tuesday, according to Ted Aronson, a longtime value investor and founding partner of AJOvista, his new investment firm. Value investors look to buy stocks for less than their net worth, essentially sifting through underprivileged assets for good deals.
Mr. Aronson returned $ 10 billion to investors in LAO, his former company, after a period of underperformance.
He compared the recent wave of meme stocks and other speculative bets to the internet craze of the late 1990s.
“You just have the herd mentality that offers stuff based on rumor or Reddit or TikTok,” Mr. Aronson said. “It’s just a payback for a long time when we had it relatively easy, when value investing was working really well and any monkey could do it.
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