Hertz is the latest example of baffling investor behavior.
On May 22nd (the Friday leading into Memorial Day weekend), bankruptcy rumors caused the car-rental company’s stock to drop 7.5%. The rumors turned out to be true. Hertz officially filed for bankruptcy that night. And by the time the markets reopened, their shares had further plummeted down to an abysmal 41 cents.
Then something quite remarkable happened.
In a five-day span from Wednesday, June 3rd, to the following Monday, June 8th, Hertz’s shares took off. They topped out at $5.53. But the zaniness didn’t end there. A week later Hertz announced it was seeking to raise $500 million through a new stock offering. The judge unenthusiastically approved the request. He said it was unclear whether the stock will be worthless by the end of Hertz’s bankruptcy proceedings.
That’s not exactly a compelling reason to buy. Perhaps Hertz hopes that the same investors who pushed its stock up the week before will now purchase $500 million worth of new shares.
I suppose that with a struggling economy and overpriced stock market, investors in search of big gains feel like they can’t be choosy. Hertz is not an impossible bet (though also not a good one). A bankruptcy filing doesn’t mean the company is going out of business. Instead, it can be thought of as a lifeline. It’s a chance to restructure its woeful finances and heavy debt obligations and begin again.
This isn’t the first time Hertz has tried this. It declared bankruptcy on the last day of 2014. And it came back, listing again in mid-2016. The company says the bankruptcy process will give it “a more robust financial structure.”
That’s great in theory. The problem is the economy (and, arguably, the company itself) is much worse off now than it was in 2015. It’s not hopeless. But it sure ain’t the smartest way to invest.
If you’re looking for the thrill of striking it really big on a single investment, at the very best — and if everything goes Hertz’s way — investors might make up to 10X. For a public stock, that’s amazing. The chances of it happening with Hertz is extremely slim. But that slim possibility is what’s fueling demand for Hertz shares at a rather hopeless time.
To say investors are overreaching for big gains is an understatement. There’s a much better way to buy low that doesn’t involve investing in bankrupt companies that are grappling with existential threats, bloated work forces, an excess of supply and a bunch of competitors.
I’m talking about crowdfunding. Hertz belongs to yesterday’s transportation era. If you want to invest in the thriving transportation companies of tomorrow, go to the startup space. You’ll find drone companies solving problems of last-mile delivery and passenger drones capable of taking people to destinations up to 100 miles away. You’ll find a number of software startups contributing to the technology of self-driving cars. You’ll find startups seeking to improve your flying experience.
The list goes on! The hottest technologies in the transportation industry (and the companies with the biggest upside) aren’t public companies. They’re private startups. And many of them will at some point raise money from you, the everyday investor. The upside for transportation startups that bring real disruption to the space is 30X to 50X. And I guarantee some transportation startups will do much better- hitting 100X or more.
Unlike Hertz, these startups aren’t household names. If you’re not familiar with the portals they list on (like Republic, SeedInvest, Wefunder, MicroVentures, NetCapital, and StartEngine), they’re tough to find. And once you find them, you still have to do some research. Not all startups are equal. Some are much better than others.
The choice between Hertz and promising transportation startups is a no-brainer. Hertz is bankrupt. And even the healthier transportation stocks have very limited upside these days. And that includes Uber. (Meanwhile, startup investors got rich investing in Uber.)
Hertz would be a stretch even if there weren’t a much better way to make big gains. But there is. You can easily access top-quality startups online and invest affordable amounts. Investing in Hertz is nuts. Funding startups is the smartest and most effective way to realize big gains.