Why our high school students knew not to buy Hertz stock after it filed Chapter 11

Many young traders lost 70% of their investments in 2 weeks...Not ours!

After Hertz recently filed for Chapter 11 bankruptcy, sophisticated investors like Carl Icahn knew to get out. Icahn understood that Chapter 11 doesn’t mean a company is necessarily going “out of business,” but it does mean that holders of common stock could lose all of the value of their holdings when the company restructures its debts. He sold 55 million shares of Hertz at 72 cents per share.

Unfortunately, many less-sophisticated investors saw the price of Hertz drop to under a dollar and started buying shares at what they thought was a bargain. Did they really know better than Icahn did? Nope. In fact, the majority didn’t understand the basics of debt and equity, and bid the price back up to $5.53 per share. As we write this, Hertz is trading at $1.66, so many young investors have already lost 70% of their investment.

We’re proud to report that the high school students who completed the First Generation Investors program knew that smart investing means investing over time in a balanced portfolio of diverse holdings. We teach them not to follow the crowd and invest in a stock because it’s going up. In fact, we teach them to start with investments in mutual funds, rather than trying their hand at “stock-picking.” We teach them about “dollar cost averaging,” and the idea that if they invest a little bit every week or every month in these funds, they will likely build wealth over the long term. No guarantee, but probably.

We’re proud that our students understand these concepts and hope that programs like FGI will help more young people learn to invest wisely and patiently and build wealth over time.