George Santayana famously wrote, “Those who cannot remember the past are condemned to repeat it.” In the realm of finance, there seems to be a constant flow of those who repeat the mistakes of the past. This year has been no different.

Shares of Hertz Global Holdings Inc. (HTZ) soared from $0.816 to $5.53 between June 3, 2020, and June 8, 2020. It has since fallen to $2.00 per share as I write this on June 17. These are massive percentage moves. The jump in price occurred approximately two days after the car rental company filed for Chapter 11 bankruptcy. The stock was also under a threat of being delisted by the New York Stock Exchange (NYSE).

How did the company respond to the volatility? It filed to sell up to $500 million in shares through an agent (“the ATM Program”; their acronym, not mine), although the program was suspended after the SEC raised questions.

The sudden surge of interest in Hertz was attributed to Robinhood. Robinhood is a commission-free, app-based brokerage firm. It is popular among younger investors. It’s so popular that a website has been created to track which stocks are most popular among Robinhood account holders: Robintrack.

During the 30-day period ending June 16, 2020, Hertz ranked fourth in terms of growth in popularity. As we went to press, 163,490 accounts held shares of Hertz. A month prior, the stock was held in 39,690 accounts.

What accounted for the surge in interest? It’s not completely clear. One commonly floated theory is that a lack of live sports has led some fantasy sports players into the stock market. This, in turn, has shifted the gambling mentality from sports into stocks.

Whether the lack of live sports is specifically to blame for the action in Hertz is not something I can vouch for. What I can say with certainty is that we’ve seen this story before, and it never ends well. Speculating on highly risky assets is akin to playing a game of hot potato. In this case, everyone thinks they’re also disciplined enough to get out before it’s too late, but most aren’t. The same game was played with cannabis stocks, cryptocurrencies, housing, dot-com stocks and many other investments. Every time, many speculators received the financial equivalent of a third-degree burn.

Given the craziness in Hertz, we’ve decided to rerun a 2011 article about corporate bankruptcy. What we wrote nine years ago remains valid today: “A bankruptcy can result in a reorganization or a sale of the company’s assets. Under a reorganization, bondholders may receive stock in the new company. Shareholders may see their ownership interests completely eliminated.” You can see the full article here.

If you know someone who uses the Robinhood app to speculate, give them a copy of the article and perhaps buy them an AAII membership. We’d like to help them learn how to become a successful investor.

Of course, many of you reading this invest instead of gamble. Some may seek out dividends as a source of cash flow and/or as a sign of fundamental soundness. What you may not realize is that dividends also combat inflation.

Aaron Brask provides the data here. Dividends have experienced an 83% correlation with inflation over 25-year periods dating back to 1880. Their correlation with inflation has been stronger than that of earnings. Put another way, as inflation has increased, so have dividends. Is it completely in lockstep? No, otherwise we’d see an even higher correlation, but the link is pretty strong.

Speaking of inflation, those who use Robert Shiller’s cyclically adjusted price-earnings (CAPE) ratio will want to read Stephen Wilcox’s article. Wilcox looked at the relationship between the CAPE ratio and periods of deflation and high inflation. Many of the lowest readings for the CAPE ratio have occurred when prices were falling or surging. You can see his observations here.

Finally, given the passage of the SECURE Act, we’re running an update of my 2017 article on the rules regarding inherited IRAs. While the law got a lot of publicity for ending stretch IRAs, it also added a new category of beneficiaries. Adding to the complexity is that depending on the date of the owner’s death, beneficiaries may have to be familiar with the old rules, the new rules or possibly both. The latter would occur if one decedent died in 2019 and another died in 2020.

After reading it, I strongly encourage you to meet with an estate attorney if you have questions. Some of the rules are pretty clear cut; others, not so much, especially if a trust or a successor beneficiary is involved. For those who want to dig deeper, we’re including a list of the resources I used in the online version of the article.

Wishing you prosperity and good health,