The recent movement in Bed Bath & Beyond Inc.\u2019s stock has shone a spotlight on the attraction that bankrupt companies hold for some investors.\u00a0<\/p>\n
Bed Bath & Beyond\u2019s shares Howard Ehrenberg, a bankruptcy and reorganization practice partner\u00a0at law firm Greenspoon Marder, said that, while he can\u2019t discuss Bed Bath & Beyond specifically, bankrupt companies\u2019 stocks are fraught with problems for investors.<\/p>\n \u201cOverall, anyone who buys and holds the stock of a bankrupt entity is almost assuredly going to lose their money,\u201d he said, noting that a company will either go into liquidation or reorganize, with the stock often being dramatically diluted.<\/p>\n \u201cThe history of stocks emerging from bankruptcy is not very good,\u201d Ehrenberg added.<\/p>\n Related:<\/strong>\u00a0Bed Bath & Beyond: From home-goods behemoth to bankruptcy<\/p>\n Shares of Hertz Global Holdings Inc. Bed Bath & Beyond filed for Chapter 11\u00a0bankruptcy protection in April and was subsequently delisted from the Nasdaq exchange.\u00a0Trading\u00a0over the counter since May 4, with\u00a0liquidation sales\u00a0under way at hundreds of stores, the stock nonetheless continues to\u00a0attract attention. Since the bankruptcy filing, investors have spent almost $200 million trading \u201ctheoretically worthless\u201d shares, the Financial Times\u00a0reported.\u00a0<\/p>\n There has, meanwhile, been plenty of chatter about Bed Bath & Beyond on social media.<\/p>\n Some users on Twitter and Reddit have cited the retailer in conjunction with \u201cTeddy,\u201d an apparent reference to Teddy Holdings LLC, which last year filed a series of trademark applications\u00a0with the U.S. Patent and Trademark Office. While Teddy Holdings is apparently linked to activist investor Ryan Cohen, at this stage, there is no indication that the holding company will play a part in Bed Bath & Beyond\u2019s bankruptcy process.<\/p>\n Ehrenberg sees parallels between the purchase of shares in bankrupt companies and the meme-stock phenomenon of recent years. \u201cThey are clearly retail investors, largely on the Robinhood Related:<\/strong> Bed Bath & Beyond investors have spent $200 million trading \u2018worthless\u2019 shares \u2014 will this holding company help them?<\/p>\n \u201cTo me, it\u2019s more like gambling than it is about true financial analysis of the company\u2019s stock that you want to buy,\u201d Ehrenberg added.<\/p>\n This type of investor behavior has also caught the attention of academics.<\/p>\n In a recent paper, James Clunie, a director at investment consultancy Long-Short Consulting and an honorary professor at the University of Edinburgh, and Patrick Schotanus, a visiting professor of cognitive economics at Edinburgh Business School, describe how narratives can influence trading. \u201cIt is well understood that narratives can stimulate trading, which influences prices and can change business reality, and back again in a recursive pattern,\u201d they wrote.<\/p>\n \u201cNarratives in markets are not merely confined to investors seeking conviction,\u201d the academics note, pointing to the role that that social media can play, as has also been noted by other researchers.<\/p>\n The paper has been submitted and is under review by the journal Collective Intelligence, Schotanus said.<\/p>\n Clunie told MarketWatch that recent action in Bed Bath & Beyond\u2019s stock could also be related to predatory trading against short sellers. \u201cBy boosting the short-term share price, a group of traders can impose unrealized losses on short sellers, who may be unable to hold on to those positions\u201d because of a \u201clack of resources to meet variation margin, or internal risk-management constraints such as stop losses,\u201d he said. \u201cThe short seller must then cover his [or] her position by buying at the new, higher price.\u201d<\/p>\n
\n BBBYQ,
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\n have risen 30.7% in the last month, outpacing the S&P 500\u2019s
\n SPX,
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\n gain of 2.9%, despite the bankrupt home-goods retailer\u2019s well-documented woes.<\/p>\n
\n HTZ,
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\n which filed for bankruptcy protection in 2020 and exited bankruptcy the following year, trade around $19, well below an all-time closing high of $109.48\u00a0on Aug. 19, 2014.<\/p>\n
\n HOOD,
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\n platform, that are readers of Reddit,\u201d he said. \u201cThey are people buying on rumor and hoping that by participating in a mass purchase binge, they will make money.\u201d<\/p>\n