Stocktake: Kodak is the day traders’ new plaything

Rally driven by news of government loan to help produce coronavirus treatment

US president Donald Trump at a news conference at the White House in which he announced that Eastman Kodak would receive a loan to manufacture ingredients used in pharmaceuticals. Photograph: Alex Wong/Getty Images

US president Donald Trump at a news conference at the White House in which he announced that Eastman Kodak would receive a loan to manufacture ingredients used in pharmaceuticals. Photograph: Alex Wong/Getty Images

 

Retail day traders piled into Kodak after the stock went bananas last week, following a 20-fold share price increase. More than 60,000 customers of Robinhood, the zero-commission brokerage favoured by amateur traders, added the stock to their accounts over a 24-hour period. This kind of crazed speculation rarely ends well, so many day traders will eventually learn some painful lessons. However, Kodak’s story also holds lessons for professional investors. In the 1970s, Kodak was a member of the famous Nifty Fifty, a group of expensive growth stocks that were the darlings of institutional investors. By 2012, Kodak had gone bankrupt.

In 2018, it briefly hit the headlines after announcing it was launching its own cryptocurrency, KodakCoin. Last week’s rally was driven by news of a government loan to help produce a coronavirus treatment.

High-flying growth stocks are sometimes priced like the good times will never end. Kodak’s downfall is a reminder today’s hero stocks can become tomorrow’s zero stocks.

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