Robinhood traders are going to get their fingers burnt

Linda J. Dodson

Furthermore, the stock collapsed by about a third on reports that the US government was blocking the loan.

Nonetheless, Robinhood traders had embraced the story and had been buying into the shares with zeal. The SEC has now unveiled an investigation into how the deal was announced, as there were a significant number of trades on the day before the news was officially announced.

Eastman Kodak has a bit of a history of pivoting towards trendy investment fads. A couple of years ago it tried a “pivot to Blockchain” – something that was also causing share prices to explode. Perhaps Robinhood buyers of the shares don’t remember this history.  

The rise of digital photograph and smartphone has meant that Eastman Kodak has been a company in search of a new business for quite some time. In January 2018, it announced a partnership with Wenn Digital to launch a digital currency and blockchain-based platform, with an initial coin offering (ICO) expected at the end of January.

The KodakCoin announcement doubled the price of Kodak shares but none of it came to pass. Before the Covid story, the shares were trading at about a third of the level seen before the KodakCoin announcement. This should all make investors cautious.

But history is irrelevant for momentum traders – as are fundamentals. It is a trading strategy in which investors buy securities that are rising and sell them when they appear to have peaked. Then, the investor takes the cash and looks for the next short-term uptrend and repeats the process.

Of course, so-called momentum trading isn’t new. Its most famous proponent was probably Richard Driehaus, who generated impressive returns in the 1980s and 1990s using momentum strategies based on results “surprises” as buy and sell signals. But the current momentum traders are not using fundamental data – they are looking at lists of popular stocks and trying to ride the wave. The problem with momentum investing is that moves could be just as rapid on the downside as they are on the upside.

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