By on August 21, 2009

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 liquidating company?

Get the latest TTAC e-Newsletter!

24 Comments on “Ask the Best and Brightest: Why Are People Still Buying Old GM Stock?...”


  • avatar
    moedaman

    Maybe people are looking for unusual wallpaper? :)

  • avatar
    rnc

    Long/Short, you’re paying pennies for potential that at the end of the rainbow (the liquidation of unwanted assets) that there may be more pennies left (the miracle green economy takes off and buys unwanted GM factories for far more than what is expected). Can’t hurt, and if it doesn’t work you have a writeoff.

    That’s all I can think of.

  • avatar
    rpol35

    That’s one of the reasons that the SEC forced the old GM to change its ticker ID from GMGMQ to MTLQQ (Motors Liquidation Corp); there was a fear that investors thought they were buying the new company when in fact they were buying the old one.

    I don’t get it as most people know the approximate value of Saab, Hummer and Saturn since their sales have been announced and there will not be a windfall derived there. Perhaps there is an assumption that GM’s unwanted real estate holdings may see some enhanced value from development such as the former Broening Highway assembly plant in Baltimore which went to waterfront development and has turned out as a valuable location for mixed use.

    For the most part however, commercial real estate will not see a big improvement for at least another nine months at soonest so I doubt that is driving any perceived future stock appreciation.

    I don’t get it I guess.

  • avatar
    SherbornSean

    Damn, moedaman, you beat me too it!

  • avatar
    Kevin

    Maybe the buyers are unsophisticated individual investors — or maybe the buyers are all day traders who are collectively bidding up the stock while assuming everyone else is an unsophisticated individual investor.

    Either way it’s pretty funny. It’s like participating in a multilevel marketing scam when you know it’s a Ponzi scheme but you figure you can get out soon enough to avoid being the sucker.

  • avatar
    TexN

    To quote Forrest Gump, “Stupid is as stupid does.”

  • avatar
    AKM

    Wallpaper? Wouldn’t that be more like toilet paper?

  • avatar
    rnc

    Forgot the Short – Yes basically day traders who are buying based on math without ever really looking at what they are buying (Hey that’s up 100% in the last hour ($.05 to $.10) I’m getting in on that). Its really no different than investing in the DotCom boom, it was gambling, if you got in and out at the right time you made out, if not, than not.

  • avatar
    ChristyGarwood

    rnc said “That’s all I can think of.”

    Maybe those buying are incapable of thinking as clearly as the B&B here…

    Does the Detroit area investment advisor think those buying oldGM stock are from SE Mich.? Do any facts inform this speculation?

    On a related note to wallpaper, a fellow GM co-worker said his grandparents bought him a share when he was born and he still has the actual certificate. It will probably be framed and hung above the pool table in the rec room in the basement…

  • avatar
    mikey

    Me too Christy G, I got my share framed with my old voided plant pass,and my union card.

    I believe the frame is worth more than the contents.

  • avatar
    lw

    Well I can think of four reasons that create both buyers and sellers.. Gotta have both to do a deal….

    #1 – The greater fool theory. If I spend $5K on this, maybe someone else will be even dumber and offer me $6K. Pure speculation. Very risky but not ignorant.

    #2 – People are dumb. They think they are helping GM.

    #3 – Estate cleanup. There will be people dying for decades that leave thousands of shares of GM and Chrysler to family, friends and charities. Imagine a GM executive who wrote a will back in 1995 and has been living with dementia for the last decade. He has no idea what happened and never will. Probably thinks his kids are going to be wealthy the day he dies.

    #4 – People who bet on Obama not to go Ch. 11. They still have some shares and are looking to unload at the best time for tax purposes. Very risk though if the buyers dry up.

  • avatar
    ZoomZoom

    AKM :

    Wallpaper? Wouldn’t that be more like toilet paper?

    Actual toilet paper is much less expensive, and much less abrasive to your tushie.

    No, with one exception (buying a single share for the actual certificate), I think the people buying GM stock are one or more of the following:

    1. Average investors (those who buy when stocks go down, and buy more when they keep going down).

    2. The same clueless people who have been cutting me off and slamming on the brakes, or driving slowly in the left lane. This seems to have increased lately, and the GM badge is a common theme. Popular GM models being driven by these people include the Tahoe, Suburban, and anything with a GMC or Saturn badge on it.

    3. People who think the government won’t let GM fail. If it’s not allowed to fail, then it “must” be successful. Quite often, success=higher stock price.

  • avatar
    ChristyGarwood

    @mikey – long long ago in a land far away, I dispatched with my last paper GM stock certificate…

    rpol35 has it right – the stock being traded is OLD GM – which is being liquidated by those $938/ hour lawyers in Southfield, MI. It will never have anything to do with ‘bama-will-never-let-them-fail-bail-outs’.

    My opinion, greedy traders preying on the foolish.

  • avatar
    IOtheworldaliving

    MTLQQ is about $0.85 a share today. On 7/27 it was $0.41. It’s fun to play with if you can afford it.

    Loyal Metro Detroiters buying old GM? Well, there are a lot of loyal Lions fans, aren’t there?

  • avatar
    wsn

    Well, that’s because it’s too low to be allowed for short selling. Otherwise, smarter investors would short sell it to 0 in one day.

  • avatar
    wsn

    IOtheworldaliving :
    August 21st, 2009 at 1:32 pm

    MTLQQ is about $0.85 a share today. On 7/27 it was $0.41. It’s fun to play with if you can afford it.

    But the things there are lots of other stocks to play with. Such as AIG, FRE and FNM that went up more and have a better chance of turning around.

  • avatar
    jaydez

    I spend an hour arguing with 3 of my co-workers over this when GM was in the process of bankruptcy. They were all convinced that if they buy the shares of the old GM then when the new GM issues shares they will just be given that many shares of the new company.

    I assume that since 3 out of the 20 people in my office thought this then we have about 15% of the population who are under the same assumption. The people buying it are idiots, plain and simple.

  • avatar
    Chicago Dude

    wsn,
    You can’t short sell a stock to 0. To complete the short sale process, you must purchase a share to replace one you borrowed. This creates a market for the issue, thus it has a price.

    I would guess that at least some of the trading volume is from people who shorted GM and are now collecting their profit. However, since it is now on the pink sheets anyone who had shorted GM through their brokerage account probably had their trade called long ago.

    There are a lot of people out there that love to trade pink sheet stocks, especially the volatile ones. While they are within the jurisdiction of the SEC, it seems as though the SEC couldn’t care less about obvious manipulation. Surfing investing message boards will show plenty of examples of seemingly illegal manipulation of pink sheet stocks. The old GM has become one of these stocks and will probably fall into the same trap for the majority of “investors”. These things are a great way to lose tons of money; I have no idea why anyone even bothers playing with them.

  • avatar
    wmba

    General Motors Canada did not go bankrupt, nor did Chrysler Canada.

    The question is: who owns GM of Canada? I can’t find a definitive answer. Before GM’s bankruptcy in the US, they owned GM of Canada outright. But does old or new GM own the Canadian subsidiary? It’s like Opel — are they owned by the old or new GM?

    Does anyone know for sure?

  • avatar
    ChristyGarwood

    @wmba

    GM Canada went with new GM. It should be in the BK court filings if you don’t want to rely on my memory of all of the paperwork and public notices provided to its employees like me.

    GM-Europe became Adam Opel before the US BK filing and includes Vauxhall, so it is neither old nor new GM, but new GM is doing the negotiation for its sale.

    Old GM consists of the plants that GM announced it was going to close in addition to some misc. properties like a golf course on the east coast of the US.

    Saturn, Saab, and Hummer are considered part of new GM in terms of where proceeds will go upon closure of the sales.

    I tried my best keeping up with it all, but mostly it has to do with legal business contracts interwoven with high finance and my hair started hurting when I tried sorting it out since I believe figures never lie and liars figure.

    And the interconnections will become like a plate of spaghetti if the sales close and new GM has contracts to supply product to Saturn, Saab, and Hummer!

    But I am ever thankful I am still working and I hope I am not part of the 10/1/09 cutback.

  • avatar
    johnny ro

    I’m with RNC on short term speculators.

    Plus there are those who truly do not understand what they are buying, or do but do not grasp fully its dead future. I don’t want to call them stupid though. Just making mistakes. Please don’t look at my own 401k.

    And some will travel with some of the day traders and get out at a profit.

    In the long run it will be a full loss if you hold it. Thats one thing (among many) that TTAC people know better than others.

    On the day traders, I remember SEC estimated in late 1990s that a day trader needs a steady annualized 56% rate of return to cover the fees charged to do day trading. I also remember day traders going postal.

  • avatar
    FreedMike

    Well, shares traded means bought AND sold…we’re focusing on the reasons to buy, but a lot of folks may be selling while they can as well.

  • avatar
    wmba

    @ChristyGarwood :

    Thanks very much indeed for the reply. So GM Canada is an asset of the new GM.

    Adam Opel, though, is an autonomous company at the moment, owned by neither the old or new GM. But new GM is negotiating on their behalf with the German government. Why? Just for old times sake?

    That’s a bit weird, when you consider what Bertil Schmitt says today, Aug 22, which he has written before as well. That is, the German government will fund Magna’s bid for Opel, but not Ripplewood’s (this RHJ stuff is a Belgian cover name for a branch of Ripplewood Holdings). And yet new GM, negotiating on behalf of a company they have no financial interest in at the moment, favours Ripplewood’s bid.

    I know there’s been speculation that Ripplewood might sell Opel back to new GM down the road, but the whole thing really makes no sense. Other than there might be something in it for GM sometime in the future, maybe, perhaps, if Ripplewood wins. Which they won’t.

    I don’t understand.

  • avatar
    obbop

    ““We want to root for the home team.”

    Silly ignorant fools.

    The same thinking led to my buying that 2004 Silverado when I knew deep inside that I should buy a Toyota pick-up.

    After the CONTINUOUS spitting in my face regarding the near-endless events of warranty non-coverage from corporate level down the the dealerships I learned my lesson.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • Polka King: Any one of these things is more than adequate for anyone who doesn’t drive like an a’hole....
  • 28-Cars-Later: Finally someone else who gets it.
  • brn: tonycd, My previous tires were Continental PureContact. My most recent tires are an updated version of...
  • brn: None of this means jack about human caused global warming as long as we keep increasing the number of humans....
  • mcs: With Korea, it depends on the company. Actually, that applies to every country. I’m not a fan of LG. I had...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber