In a recent piece on The Impact of No Brokerage Fees on Retail Investors, we discussed how zero-fee stock trading helps investors adhere to best practices like dollar-cost-averaging. What we didn't talk about was how zero-fee stock trading apps such as Robinhood would open up a floodgate of newbie investors whose irrationality knows no bounds.
You may have read recently about how investors flocked to buy up Hertz shares even though the company warned that the shares they were selling were most likely worthless given how badly their debt situation is. Given that nearly half of all millennials can't tell you what interest rates they have on their personal debt, it's no surprise they don't understand what happens when a company files for bankruptcy. If Hertz has enough assets to pay down their $24 billion in debt, then maybe those shares might be worth something.
These are the same sort of "investors" who sent Virgin Galactic's stock soaring into the stratosphere, only to see it c