Have 80 and Mikey been on a buying spree?
Why Are People Still Buying Old GM Stock?
The AP [via Google] reports that 13.9m shares of Old GM were traded last
Thursday alone, raising the obvious question: why? “There are people who
think they are buying the new General Motors. Stop. You’re not. You’re
buying the detritus,” says Harlan Platt, a finance professor at
Northeastern. And Old GM’s spokesfolks agree. “We’re not in any way
promoting the trading of it,” says Old GM spokesman Tim Yost. “We have
no legal right to stop the trading. That’s well beyond the purview of
any given company.” And though some are trading Old GM for short-term
profits, a number of traders seem to be buying Old GM stock out of
ignorance or unfounded optimism. One Detroit-area investment advisor
explains: “the thing about people in the Detroit area is we’re homers,”
he said. “We want to root for the home team. A lot of times people will
do that, more with their heart than with their head.” But does Detroit’s
hometown loyalty extend far enough to motivate people to buy stock in a
Traders keep buying old GM stock, despite warnings
By TOM KRISHER and TIM PARADIS (AP) – 19 hours ago
DETROIT — Whether it's a matter of ignorance or greed, people are still
buying General Motors stock, even though the company and the government
have warned that the shares will someday be worthless.
Investors are picking up millions of shares every day, thinking they'll
profit from what is really a hodgepodge of outdated factories and a pile
of debt left behind when the new General Motors Co. exited bankruptcy
Instead, they could end up losing money very quickly. The price of the
shares, currently under $1, has ratcheted up or down as much as 50 cents
in one day.
On Thursday, investors traded 13.9 million shares, and the stock closed
at 85 cents, down 4.1 percent. The old GM stock had a higher trading
volume than big, viable companies like retailer CVS Caremark Corp.,
banker Capital One Financial Corp. and consumer products maker Procter &
Industry analysts and regulators say two groups are buying Motors
Liquidation stock: People who are confused and think they are getting
shares of the new GM for cheap, and day traders or institutional
investors hoping for short-term gains as others continue buying the stock.
GM and federal regulators say they have done all they can to warn
investors, giving old GM the appropriate moniker of Motors Liquidation
Co., issuing multiple public warnings and changing the stock symbol from
GMGMQ to MTLQQ.PK.
"There are people who think they are buying the new General Motors.
Stop. You're not. You're buying the detritus," said Harlan Platt, a
finance professor at Northeastern University who follows corporate
Those who invest, experts say, run a very real risk of losing everything
at any moment. Aside from the possibility of the stock vanishing once
liquidation of the old company ends, demand could wane and prices could
plummet to near zero as more people figure out that they're not
investing in the new GM.
But for now, there still are traders who haven't gotten the message that
Motors Liquidation is merely a shell set up to oversee the sale of GM's
bad assets, get as much money for creditors as possible and then be
Since regulators reinstated Motors Liquidation stock sales on July 15
after a three-day suspension, more than 800 million shares have been traded.
One investor, in a posting on a Web site for small cap stock traders
last week, wondered why the shares, which he bought in June for 47
cents, fell more than 40 cents in one day.
"Today it went all the way up to $1.20 and I got greedy and thought I
could get out around $1.30," the trader wrote. "When I came home from
work it tanked down to 0.73. Can anyone give me any reasons or signs why
Another trader responded on the site that the stock is not the real GM
and he should be surprised that it hit $1.20.
Motors Liquidation was born July 10 when the new GM emerged from 40 days
in bankruptcy court free of much of its debt and burdensome contracts.
Douglas Baird, a University of Chicago law professor who specializes in
bankruptcy, said it's typical for trading of the old company's shares to
continue after bad assets have been separated from the good ones in
court. The company is still a legal entity and has to have owners. The
shares, he said, may not go away until after the old GM is liquidated
and legal claims settled, which could take years.
Motors Liquidation has posted a warning on its Web site saying the stock
will have no value, but the company cannot halt trading, said spokesman
"We're not in any way promoting the trading of it," Yost said. "We have
no legal right to stop the trading. That's well beyond the purview of
any given company."
The U.S. Securities and Exchange Commission and the Financial Industry
Regulatory Authority, which regulates over-the-counter stocks, issued an
"investor alert" on July 14 warning against buying or keeping the shares.
Beyond that, SEC officials say they can't prohibit trading in the old
stock, only warn against it. They say there aren't grounds because the
bankruptcy is widely known to the public, although FINRA says some stock
promoters may have given out confusing and potentially misleading
So even though the new GM has said it won't offer shares to the public
until next year, there are those who still believe they are buying into
the new company.
Ron Humenny, president of Starfire Investment Advisers Inc., in the
Detroit suburb of Southfield, said he has received calls about buying
Motors Liquidation shares from Detroit-area investors who want to see GM
"The thing about people in the Detroit area is we're homers," he said.
"We want to root for the home team. A lot of times people will do that,
more with their heart than with their head."
Some have seen Internet blog activity that incorrectly says Motors
Liquidation is the new GM, he said. They can end up falling for an old
scam of pumping up a stock on the Internet and then selling it.
Even some well-known public trading sites offer descriptions of Motors
Liquidation that could be confusing to investors. Scottrade and
Ameritrade, for example, describe it as a company that makes and sells
cars and trucks all over the world. The language, spokeswomen for both
sites say, came from a third party that they hire to provide content for
the sites. The language also says most of GM's assets were sold to the
Kim Hillyer, spokeswoman for Ameritrade, said the description is merely
a snapshot of Motors Liquidation. She said Ameritrade posted two
warnings for its subscribers and added that it's incumbent on investors
to check out stocks.
"Any time you're interested in a security, it's up to you as an
individual to do your research," she said.
Baird said the SEC isn't likely to step in unless people are
misrepresenting Motors Liquidation as the new GM.
"If you have two consenting adults and one wants to buy, I can sell you
Confederate war bonds and the SEC is not going to stop me," he said.