How Does A Casino Move Turn A Bankrupt Company Into Stock Gambling!

The story of Hertz and how an online community is transforming WallStreet in a high-risk betting machine…

You already heard about Hertz.

Hertz is a car rental company. One of the largest worldwide rental companies. The second-largest in the U.S. More than 567,000 vehicles and a brand that franchises globally.

This company has been renting cars since 1918. They survived the Great Depression of 1929, the Second Great War, and several oil crashes.

But they didn´t survive this pandemic crisis. Hertz filed for bankruptcy.

Yet, if you think there is something special about Hertz as a company, it doesn’t.

Except for Robinwood investors.

For some reason, since April the 3rd, Robinwood investors start investing in an apparent dead stock at an exponential pace. Everybody wants something about this company. From 2,000 investors on Hertz, it went up to 180,000 Hertz “fans.” Stock gambling at its best.

But I found it intrigue, so I started digging. And somehow this book appeared on my screen. “ WallStreetBets,” from Jaime Rogozinski.

The subtitle made me very curious. “ How Boomers Made the World´s Biggest Casino for Millennials.” So I ordered the book on Amazon.

Somehow, as I was reading Rogozinski´s book, it was like to enter another dimension. He shared stories about the betting mania of young investors. The way they were using high risky financial instruments like options was impressive.

Stealing From The Rich To Give To The Poor

When you hear about Robinwood, you immediately think about a medieval knight stealing the treasures from the rich to offer to the poor. It´s a classic and passionate story that gives us the naive principle of equality between all.

Robinwood’s story made us believe in a better world. A world with more equal rights, and equal opportunities.

However, nowadays we live in a world with a gigantic gap between the richest and the poorest. In history, as Ray Dalio so many times say, the closest time that we had that kind of gap was in the Great Depression of 1929.

The consequences of that gap?

The political extremes started to rise. After 1929, Hitler and so many other dictators started their destructive journeys.

“History doesn’t repeat itself but it often rhymes,” as Mark Twain is often reputed to have said.

So, we must, at least, reflect on these warnings.

Yet, in the new era of digitalization, a new way of looking at Robinwood’s history has emerged.

Robinwood, an online investing platform, started in 2014. They offer their services for those who want to invest. Even those who have no money on their pockets. Robinwood transformed the industry. They offer free services as no other company was doing at the time.

That was like opening the pandora box for what I am going to explain to you.

Major brokers, including E*Trade, TD Ameritrade, Charles Schwab, Fidelity, and more, have had to follow in Robinwood´s footsteps and have begun to offer commission-free trading. There have also been similar start-ups, such as M1 Finance and Webull, which have used similar models.

We are in a free world and obviously, it´s always good to have competition because it benefits the consumer.

But we are talking about money, right?

“TD Ameritrade made me apply to enable options. I told them I have no experience, make less than $20k per year, and have 5 dependents. They approved options trading immediately”

I can give you a lot of good examples from different people. And they are building very interesting portfolios on these platforms.

One of the advantages of Robinwood and M1 Finance and other apps is the ability for you to buy a fraction of shares. The other is free-commissions.

However, this book showed me another reality, and that was when I finally understood.

Why did Robinwood investors were buying Hertz stocks if the company was filed for bankruptcy?

Let me make an important introduction before I show you the answer.

Let´s ask some of the most iconic investors advice on how to pick stocks:

Charlie Munger- “I would pick a business that has intrinsic characteristics. That gives him a competitive advantage. Management with a lot of integrity and talent. The stock must have a price that makes sense and have a margin of safety.”

Bill Ackman- “High-quality companies. As Buffett describes, companies with a strong motto. Predict future cashflow it´s easier in this type of company. If we can´t predict the cash flow you can´t know the stock value. How good the company is and how predictable the cash flow is…that´s the key.”

Peter Lynch- “People do research when they buy a refrigerator or buy a house or go on vacations. But they hear a tip on a bus saying that a specific stock is wonderful and they put their lives savings before sunset and they wonder why they lose money on the stock market. Then they blame the institutions that program trading. They didn´t do research, they didn´t look at the balance sheet. There is a method. There are reasons why a stock goes up.”

It should be this simple. And it is. So what´s the problem?

There are three major problems

Cultural attitudes toward Wall Street.

Easy access to the market through free brokers.

The proliferation of easy-to-use financial instruments.

When millennials had the age of 20 years old, the 2008 mortgage crisis came. And it whipped out the savings of their parents, grand-parents, familiars, and friends.

At that time, there were records of unbelievable capitalistic schemes in financial institutions. It fueled the world´s most shameful stories.

And millennials not only did they watch, but they suffered from the whole process.

Some of them are now the creators of these free platforms. Others are the users.

Millennials have a different mindset. They want a change. A big one.

The generation that created the Blockchain is now creating free commission apps, to make all the process more transparent. They want to find ways to skip the banking system and other intermediary dictatorship.

The big problem is that greed is always very close to money and fortune.

So, throw banks or online platforms, you will always have people trying to get rich faster and easier.

Leverage instruments are like toys in the hands of children in the kindergarten. Options are like a new pool of chocolate. Kids jump into it with ease and quickness.

Millennials are treating Wall Street for what it is- a gigantic casino for them to play. A legal venue full of leveraged tools to make sophisticated bets with their cell phones.

It´s not a new concept, as we know. We watched in 2008, a casino orgy orchestra on TVs all over the world. Stock gambling is not going anywhere.

We had Hollywood blockbusters that showed the different perspectives of the same hysteria. Remember “The Big Short?” Or “The Wolf of Wall Street?” Or “Margin Call?”

On the internet catacombs live a Chatroom called “WallStreetBets.” It´s used by millennials.

And this masterminds created a community of humorous culture about Wall Street. It was a very interesting platform for the counter-power of the established forces.

Nowadays, it turned into a social media network where kids and youngsters bet on the YOLO culture. YOLO means You Only Live Once.

YOLO culture was the reason I finally understood what happens to Hertz investors.

Hertz investors were buying stocks of a dead company for fun!

Just for adrenaline. Just for having the feeling that in one bet, they could lose it all or win it all.

These millennials are playing with these toys. Some of them don´t understand or even care about it. These Wall Street instruments, created by the most profitable industry of the world, are at the distance of one click. It´s too easy not to use them.

And that´s a real atomic bomb. Another one, I guess.

As David Faber warned on his CNBC show with Jim Cramer, Every single time we have a crisis, we realize all the things Wall Street has created that come back to haunt us.

Today we have young people trading during their work pause, on their cell phones. Betting millions of dollars that they don´t have.

Waking up the next day owing money they can´t afford to pay.

And they are playing in the same places as professional traders.

Millennials know how to get infinite leverage using cheat codes. They are in the possession of thousands of accounts that aren´t protected with safety switches.

High School Kid Go From $900 to $55k

Let me entertain you with a description of a young high school student called Jeffrey. He shared with the crowd a very documented lucky streak of wins online.

In January 2016, Jeffrey posted on social media´s Reddit WallStreetBets forum the title So I had 900 left in one of my accounts and decide to YOLO it.

This all-or-nothing bet made him win an almost $3,200 profit overnight. He had now $4k in his account.

The next day another title: I decided to YOLO again with the $4k from yesterday. He shared a screenshot taken from his cell phone showing he made roughly $5,500. His account was now with the total amount of $9,400.

Suddenly the forum transformed in a soap opera with everyone giving something for Jeffrey to keep the YOLOing trip.

You know what to do next, said someone called World_Chaos.

The next day, the title 900 to 21k just in 10 days. But it kept going. Keep on yoloin´900 to 30k.

Finally, 12 days after the first shoot, the last post: Y-O-FUCKING-LO, 900 to 55k in 12 days.

In less than 2 weeks, a kid from high school turned $900 into $55k. This was total WallStreetBets soul.

Stock Options vs Casino Bets

Considering the odds of winning, statistically speaking, the stock option is worse than betting in a casino.

Yet, let´s be honest, these inspirational stories transformed single traders into pop stars.

For the press, it´s perfect. Gives traffic. Sells the dream. Makes the news more exciting and keeps the audience entertained.

Who didn´t want to be the lucky guy that turns $1,000 into $10k?

Do you think an online social media platform that shared all the loose bets would have any traction to the audience? No.

It wouldn´t have the excitement of the end of the story where the hero gets the gorgeous girl.

This is not my world. Not my way of investing. It´s dangerous ground. But it´s a reality.

And for the average millennials, it doesn´t finish like in the Robinwood film, where the hero gives the treasury to the poor and get the girl in a happy ending.

I will finish this article with the first paragraph of the 10th chapter on Jaime Rogozinski´s book:

The future of trading and Wall Street in general should be interesting. The brokerage industry is changing at such a fast pace that between the completion of this book and when the editing process was finished, Charles Schwab acquired TDAmeritrade, Robinwood lauched the ability to purchase fractional shares, and Vanguard- arguably the Holy Grail of safe investing- which is known for low commission index funds, is now offering stock options commission free.

That´s all, folks!

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