Don’t Fall Into This Investor Trap
Amanda Heckman|July 24, 2021
Uh oh… Robinhood’s in trouble… again.
During a week when the investing platform announced it will go public on July 29 (at a healthy $35 billion valuation)… and set aside a third of its initial shares for the everyday investors on its app…
Some news on Thursday cut the party short.
Those “everyday investors” are causing problems… again.
The brand-new investors Robinhood has attracted with its easy-to-use platform need to be reminded to check their email. It turns out owning shares in a company actually comes with a bit of responsibility.
Churchill Capital, a special purpose acquisition company (SPAC), has seen an influx of investors since it announced it would merge with an electric vehicle company and take it public.
Now, what all those shiny new investors didn’t realize is that shareholders must vote in order to approve the merger.
Churchill had to suspend voting on Thursday because not enough shareholders took part… forcing leadership to send out pleading messages and press releases to get more votes.
One of the most hotly anticipated IPOs of the year could be delayed by folks who didn’t do their due diligence when they invested.
This isn’t the first time folks jumping into hot stocks has caused a ruckus.
Remember how certain “Redditors” nearly broke Wall Street with their love for GameStop in late January? Robinhood… Fidelity… and TD Ameritrade all had to shut down trading in order to cover their… ahem… assets.
But that wasn’t the only bit of chaos sloppy investors have caused…
If you’ll recall, another stock target of Redditors was AMC Entertainment (AMC). But some folks didn’t check the ticker before scooping up shares. AMCX quickly doubled. AMC Networks, that is – a stock with a very similar ticker that had been in negative territory for all of 2020. Oops.
But wait… there’s more.
Video-calling software company Zoom Video Communications (ZM) spiked early in the pandemic as it became essential to the shift to working from home.
Investors piled in and the stock shot up 138%. But Chinese company Zoom Technologies (ZOOM) surged 1,800% at the same time.
When Twitter (TWTR) announced it would go public back in 2013, shares of Tweeter Home Entertainment (TWTRQ) shot up 1,800%. Investors failed to understand that Twitter wasn’t public yet and therefore couldn’t be traded. Instead, they bought shares of a defunct electronics company.
Now, while these stories make for good headlines… and a good laugh… they come with a warning.
Anytime there’s trouble, you know the government will come knocking. It’ll stop trading, keeping investors from being able to exit their trades. It’ll conduct congressional investigations… like it did with Robinhood and GameStop.
New rules will come that restrict our investment options as the government says it’s protecting the individual.
We’re all for getting as many folks as possible investing. It’s at the very core of what we do. But when you’re dealing with money… you need to know what you’re getting into.
That means doing your due diligence… reading the fine print… and, above all, having the right ticker.
Note: The SPAC deal we mentioned above will be big… but Andy’s got his eye on something even bigger. It’s a pre-IPO company with technology that The Wall Street Journal says “could revolutionize human life.” And it’s going public thanks to a SPAC… any day now. Get all the details here.
Amanda Heckman|Editorial Director
Amanda Heckman is the editorial director of Manward Press. With unrivaled meticulousness, she has spent the past dozen or so years – give or take a few sabbaticals – sharpening Andy’s already razorlike wit. A classically trained musician and a skilled writer in her own right, Amanda takes an artistic approach to the complex world of investing. Her skill has led her to work with numerous bestselling authors, award-winning financial gurus and – lucky for us – the fine folks at Manward Press.