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<ul class="summary-list"><li>Shares of Hertz surged as much as 68% to $6.20 after the bankrupt car rental company accepted a takeover bid that would give shareholders a rare payout.</li><li>The winning bid will pay current shareholders close to $8 a share.</li><li id="recirc">The rental car company was the target of day-traders last summer when it first announced it would file for bankruptcy. </li></ul><p>Shares of Hertz surged as much as 68% to $6.20 after the bankrupt car rental company accepted a takeover bid that would give shareholders a rare payout. <br /><br />Hertz Global Holdings announced on Wednesday that it accepted a $6 billion bid from a group of investors including Knighthead Capital management, Certares Opportunities, and Apollo Capital Management to exit Chapter 11 bankruptcy. The car rental company hopes to exit from bankruptcy at the end of June. <br /><br />According to <a href="https://www.wsj.com/articles/hertz-bankruptcy-auction-yields-winner-to-back-chapter-11-exit-11620825844">The Wall Street Journal</a>, the winning bid will pay current shareholders close to $8 a share. In corporate bankruptcies it's unusual for shareholders to receive any payout. In March, Hertz detailed its reorganization plan which <a href="https://markets.businessinsider.com/news/stocks/hertz-stock-investors-will-not-be-paid-back-under-a-reorganization-plan-2021-3-1030146181">revealed that shareholders would receive no payout. <br /><br /></a>Shares of the company pared back gains and were trading around $5.84 as of Wednesday 3:10 p.m. ET. <br /><br />The rental car company was the<a href="https://markets.businessinsider.com/news/stocks/hertz-stock-price-skyrockets-since-filing-bankruptcy-traders-global-holdings-2020-6-1029285231"> target of day-traders last summer</a> when it first announced it would file for bankruptcy. The stock spiked as much as 825% in just a matter of weeks before paring gains. </p><p>Non-accredited and non-institutional equity equity holders will likely not qualify to participate in the rights offering of the reorganized Hertz, <a href="https://www.bloomberg.com/news/articles/2021-05-12/once-doomed-hertz-rebounded-so-much-even-redditors-were-right">Bloomberg first reported</a>. </p><p>Knighthead and Certares won with a plan that values Hertz, including debt, at around $7.4 billion, Bloomberg said. The proposal is set to fully repay debt holders, and will also hand institutional and accredited stock investors around $240 million in cash and the chance to participate in either a $1.6 billion rights offering or warrants for about 20% of the reorganized company. The proposal will need to be approved by the US Bankruptcy Court. </p>

Bankrupt Hertz soars 68% after accepting a takeover bid that would give a rare payout to stock investors

<ul><li><strong>Shares of <keyword id="187854" type="CITY" weightage="60" keywordseo="Hertz">Hertz</keyword> have soared as much as 2,031% leading up to its exit from bankruptcy.</strong></li><li><strong>Hertz filed for Chapter 11 bankruptcy last year and was blocked by the SEC from selling equity amid a surge in its stock price.</strong></li><li><strong>Hertz represented the original "<keyword id="11161176" type="UNKNOWN" weightage="60" keywordseo="meme-stock">meme stock</keyword>" as few were able to make sense of its epic rally last year amid bankruptcy proceedings. </strong></li><li><a href="https://newsletter.businessinsider.com/join/4np/10-things-opening-bell?utm_source=markets&amp;utm_medium=ingestgest" target="_blank" rel="noopener"><strong>Sign up here for our daily newsletter, 10 Things Before the Opening Bell</strong></a><strong>.</strong></li></ul><p>In the runup to its exit from Chapter 11 bankruptcy on Wednesday, shares of Hertz Global have surged as much as 2,031% from its March 4 low of $0.41.</p><p>In many ways, Hertz was <a href="https://www.businessinsider.com/meme-stock-investing-how-to-profit-from-day-trading-patterns-2021-7">the original "meme stock"</a> as few investors were able to make sense of its epic rally last year as the company dealt with both a deteriorating business due to the COVID-19 pandemic and bankruptcy proceedings. Months later, stocks like <a href="https://markets.businessinsider.com/stocks/gme-stock">GameStop</a>and <a href="https://markets.businessinsider.com/stocks/amc-stock">AMC</a> would see gravity-defying surges driven by retail investors, even as their underlying businesses lacked a solid foundation.</p><p>The stock soared more than 1,100% in a span of just two weeks last year, and Hertz tried to capitalize off of the move by selling new equity to raise funds. But <a href="https://markets.businessinsider.com/news/stocks/hertz-stock-sale-plan-halted-after-sec-raises-issues-bankruptcy-2020-6-1029319216">that move was blocked by the SEC</a>, who objected to the bankrupt firm's plan to sell new shares to investors.</p><p>Hertz ultimately <a href="https://www.prnewswire.com/news-releases/hertz-selects-6-billion-bid-from-knighthead-certares-and-apollo-to-fund-chapter-11-exit-301290040.html">received a $6 billion bid from</a> Knighthead Capital Management, Certares Opportunities, and Apollo Management to buy the company out of bankruptcy.</p><p>The deal gave Hertz an enterprise value of $7.43 billion, and helped existing equity investors recover about $8 per share, which is rare considering equity holders usually get wiped out amid bankruptcy proceedings as debt holders are first in line to collect from the company. </p><p>Hertz investors received more than $1 billion in value from the bankruptcy exit, in the form of $239 million cash and warrants for 18% of the reorganized company.</p><p>Hertz says its now better positioned to capitalize off of the post-pandemic travel boom with a much leaner balance sheet and smaller debt load.</p><p>Shares of Hertz currently trade on the OTC <keyword id="31671" type="CITY" weightage="100" keywordseo="markets">markets</keyword> under the ticker symbol "HTZGQ" and closed at $8.74 on Wednesday. The stock will now trade under the ticker symbol "HTZZ." Hertz is up 583% year-to-date.</p><div type="image" title="Hertz stock chart." height="499" width="849" msid="84048462" hostid="261"></div>

Hertz has emerged from bankruptcy. The original meme stock has surged more than 2,000% leading up to its exit from Chapter 11.

<ul class="summary-list"><li>Speculation is the act of buying or selling assets that have an increased chance of significant losses.</li><li>Speculation is common among investors who trade penny stocks and over-the-counter (OTC) investments.</li><li>Speculation should be limited to ensure that long-term financial goals like retirement are not impacted.</li></ul><p>The bulk of investing advice, especially for those interested in retirement centers, are around slow and consistent gains over decades. But not every investor is content with the prospect of patient long-term gains. Some would rather aim for the home run trade - a move that could change their fortunes overnight. This is known as speculation and it doesn't come without significant risk.</p><h2><strong>What is speculation? </strong></h2><p>Speculation is the act of buying or selling assets that have an increased chance of significant losses. As speculative investors take on more risk, there's an expectation to achieve extraordinary returns which - in the mind of speculators - is compensation for the outsized risk.  </p><p>Speculative investors tend to be active traders. This means that they're attempting to beat the market average and have more of a hands-on approach, especially during short-term swings in the market. This is a stark contrast to more passive, <a href="https://www.businessinsider.com/personal-finance/what-is-buy-and-hold-investing-strategy" target="_blank" rel="noopener">buy-and-hold investors</a> who generally have more of a hand-off approach and do not adjust their investments as often. </p><p>The decision-making process for speculative investors can vary wildly in terms of sophistication. Some speculators base their investing decisions on social media groups and memes. This was, and still is, the primary driver behind the surge in stock price for companies like <a href="https://markets.businessinsider.com/news/stocks/gamestop-remains-a-highly-speculative-investment-1030265839" target="_blank" rel="noopener">GameStop</a> and <a href="https://markets.businessinsider.com/news/stocks/amc-stock-is-an-attractive-short-term-speculative-play-1030529037" target="_blank" rel="noopener">AMC Theaters</a>. Both companies were mired in financial trouble and at different points rumoured to file for bankruptcy prior to 2021. </p><p>Another example is Dogecoin, a cryptocurrency that saw massive spikes earlier this year when celebrities like Mark Cuban and Elon Musk discussed it on Twitter. After Elon Musk's Saturday Night Live appearance on May 8, 2021, Dogecoin <a href="https://markets.businessinsider.com/currencies/news/dogecoin-drop-robinhood-down-elon-musk-snl-episode-2021-5" target="_blank" rel="noopener">fell more than 30%</a>. A series of Musk's tweets were also blamed for the volatility in Bitcoin when Tesla announced it would take Bitcoin as a form of payment in February - only to reverse that decision in May and deciding again that the company will accept Bitcoin in June. In April, the price of Bitcoin was slightly above $65,300 which is significantly more than the current price of Bitcoin at $33,600 at the time of writing. </p><p>Other speculators base their decision on a "hunch" or market volatility, says Sabina Smailhodzic Lewis, CFP® and co-owner at Avant-Garde Wealth. "They're looking for pieces of information that scream potential to them and risk to everyone else," she added.              </p><p>Nearly every market has a speculative corner, but in today's investing environment, cryptocurrencies followed by NFTs (non-fungible tokens) are likely the most speculative. </p><h2><strong>How does speculation work in investing? </strong></h2><p>Speculation works when an investor has a strong worldview or prediction about an industry. Next, they typically identify a catalyst or event likely to spark a significant movement toward their initial prediction. If a speculator feels that the event is likely, they'll buy assets they believe will benefit them most if their prediction comes to fruition.  </p><p>An example might be the 2020 election cycle. At the time, many believed that if then-former Vice President Joe Biden won the presidency, that cannabis would be legalized on a federal level. Thus, companies like Tilray (TLRY), Canopy Growth Corporation (CGC) and Aurora Cannabis (ACB) <a href="https://markets.businessinsider.com/news/stocks/aurora-cannabis-stock-price-biden-election-lead-marijuana-stocks-2020-11" target="_blank" rel="noopener">were ground zero for speculators</a>.   </p><p>Speculation is common among <a href="https://www.businessinsider.com/how-to-invest-in-penny-stocks" target="_blank" rel="noopener">penny stocks</a> and <a href="https://www.businessinsider.com/what-is-otc" target="_blank" rel="noopener">over-the-counter (OTC) investments</a>. Companies that trade on OTC markets are not listed on formal exchanges like the <a href="https://www.businessinsider.com/new-york-stock-exchange" target="_blank" rel="noopener">New York Stock Exchange</a> (NYSE) or the <a href="https://www.businessinsider.com/what-is-nasdaq" target="_blank" rel="noopener">NASDAQ</a>. These investments tend to be inexpensive - usually less than $5 per share - but are highly risky because of the lack of oversight and their generally shaky financial histories.</p><p>In March 2020, the rental car company Hertz was trading as low as $0.41 cents and <a href="https://markets.businessinsider.com/news/stocks/hertz-reveals-stock-delisting-notice-nyse-appeal-pending-bankruptcy-rally-2020-6" target="_blank" rel="noopener">was delisted from the NYSE</a> just days before the company filed for Chapter 11 bankruptcy. Hertz then began trading on the OTC markets under the ticker symbol HTZGQ. Due to speculators betting on the company, Hertz stock price <a href="https://markets.businessinsider.com/news/stocks/hertz-stock-price-bankruptcy-exit-chapter-11-meme-investing-2021-7" target="_blank" rel="noopener">soared more than 1,100%</a> within just two weeks during the summer of 2020.</p><p><strong>Quick Tip: </strong>While not as common, speculation can also occur in venture capital markets and angel investing for new, up-and-coming companies.</p><h2><strong>Speculation within the forex and bond market </strong></h2><p>Foreign exchange (forex) is a highly speculative market in which investors trade currencies like the US dollar, Japanese Yen, and British Pound without a centralized exchange. The objective for Forex traders is to take advantage of short-term price movements between currencies. Forex, for individual investors, relies heavily on <a href="https://www.businessinsider.com/what-is-margin-trading-how-it-works" target="_blank" rel="noopener">margin</a> and <a href="https://www.businessinsider.com/leverage" target="_blank" rel="noopener">leverage</a>. </p><p>The Commodity Futures Trading Commission (CFTC), the federal agency that regulates forex,   requires a minimum of 2% deposit for trading, which means that $1,000 in a Forex account can invest up to $50,000, translating to a 50:1 ratio. If the investment moves in a positive direction, an investor can profit quickly - but if the market moves unexpectedly, a small $1,000 investment could result in thousands of dollars in debt.  </p><table style="border-collapse: collapse; width: 100%;" border="1"><tbody><tr><td style="width: 50%;"><strong>Downward move</strong></td><td style="width: 50%;"><strong>Potential loss</strong></td></tr><tr><td style="width: 50%;"><ul><li>1% </li><li>2%</li><li>20%</li></ul></td><td style="width: 50%;"><ul><li>$500 Loss</li><li>$1,000 Loss</li><li>$10,000 Loss</li></ul></td></tr></tbody></table><p>In the bond market, the line between investing and speculation is defined by bond rating agencies like Moody's, Standard and Poor's, and Fitch. Bonds that are considered strong, with a high likelihood that investors will receive their interest payments and principal, are known as "investment grade." Bonds with the lowest ratings are considered "speculative" and are sometimes called "junk bonds." Speculative grade bonds, however, often pay a higher interest rate to investors as compensation for the increased risk. </p><p><strong>Quick Tip:</strong> The rule for margin and leverage can vary based on the regulatory agency and the investment type. The Federal Investment Regulatory Authority (FINRA) regulates brokerage firms and requires a 25% minimum equity in margin accounts at all times. </p><h2><strong>Speculation vs. investment </strong></h2><p>In some circles, the terms speculation and investment are used interchangeably. But, practically, there are some key differences in the level of risk and the types of financial instruments used between investors and speculators.</p><p>"Someone who might be more speculative is typically higher net worth or they have more knowledge about a particular market or industry," said Tremaine Wills, a financial planner at Mind Over Money in Newport News, VA. That specialized knowledge and higher disposable income can result in a higher tolerance for risk than the average person she added.  </p><table style="border-collapse: collapse; width: 100%; height: 44px;" border="1"><tbody><tr style="height: 22px;"><td style="width: 50%; height: 22px;">Speculation</td><td style="width: 50%; height: 22px;">Investing</td></tr><tr style="height: 22px;"><td style="width: 50%; height: 22px;"><ul><li>Usually a very short time horizon ranging from a few hours to a few months</li></ul><ul><li>High risk, aggressive investing style</li></ul><ul><li>May include more niche investments like Forex, options, penny stocks, commodities, and more</li></ul></td><td style="width: 50%; height: 22px;"><ul><li>Long-term, usually multi-year approach   </li></ul><ul><li>Moderate risk profile, usually more passive </li></ul><ul><li>Generally includes more traditional, mainstream investment vehicles like stocks, bonds, and index funds</li></ul></td></tr></tbody></table><h2><strong>The financial takeaway</strong></h2><p>Speculation is not for the faint of heart. While the allure for big-time gains are present, it may be wise to consult a financial planner to ensure that you are not taking on more than you can handle. Also consider taking a risk tolerance questionnaire to help prepare and understand how you may react to losses.</p><p>Finally, make sure that you have a plan in place to address your immediate, short-term and long-term financial goals and keep them separate from any speculative moves you may have in mind.</p><a data-type="5ffe3955c645d76d5d4d4ab5">How to hedge against inflation with investments that keep pace with rising prices</a><a data-type="600aec9acbe91b1e763bfabd">What is OTC? A beginner's guide to over-the-counter markets, and the risks and rewards of investing outside the major stock exchanges</a><a data-type="604fb521cf7fcc07eb4574aa">What is a bond? How to earn a steady stream of income by loaning money to a business or government</a><a data-type="6015ff47aa63e0592f3157d3">'Buy the dip' means purchasing a promising stock when its price drops, assuming a fast rebound and future profits</a>

What to know about speculation: When investors buy high-risk assets with the expectation of significant returns

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Bankrupt Hertz soars 68% after accepting a takeover bid that would give a rare payout to stock investors

Emily Graffeo

Hertz has emerged from bankruptcy. The original meme stock has surged more than 2,000% leading up to its exit from Chapter 11.

Matthew Fox

What to know about speculation: When investors buy high-risk assets with the expectation of significant returns

Kevin L. Matthews II

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