There's little question that Wall Street and investors are going to remember 2020 for a long time to come. The coronavirus disease 2019 (COVID-19) pandemic was responsible for creating the most volatile environment in stock market history.
During the first quarter, the benchmark S&P 500 nosedived 34% in less than five weeks, marking the quickest ever descent into bear market territory. Then, in the second quarter, the S&P 500 delivered its best gains since 1998, with the technology-heavy Nasdaq Composite rocketing to one new high after another.
Heightened volatility hasn't brought out the best in some investors
Though this volatility can appear nauseating at times, it's the perfect recipe for wealth creation to long-term investors. That's because every single correction (save for the current COVID-19 correction) has eventually been put into the rearview mirror by a bull market rally. If long-term investors simply buy into great businesses and hang on for a long period of time, they tend to do quite well.
Of course, not all investors have been geared to think long term. Investors of online platform Robinhood have a penchant on Wall Street for being short-sighted and willing to chase today's hottest stocks. Though there are, undoubtedly, some long-term-minded investors on the platform, Robinhood's focus on attracting younger/millennial investors certainly shows, based on the stocks that are being held by members.
Recently, I covered some exceptionally popular, but downright awful, stocks that Robinhood investors have been buying. But all of these awful companies pale in comparison to the single worst stock that, for some reason, Robinhood members can't get enough of. I'm talking about TOP Ships (NASDAQ:TOPS).
Meet the absolute worst stock that Robinhood investors love
TOP Ships is a 20-year-old Greek-based shipping company responsible for moving crude oil, petroleum products, and select liquid chemicals. Since the midpoint of the 2010s -- and truly since prior to the Great Recession -- average daily shipping and storing rates on crude products have been falling. This is a byproduct of shipping companies flooding the market with new vessels, and the price of crude oil tumbling from more than $140 per barrel (briefly) in June 2008 to its current per-barrel price of around $41 for West Texas Intermediate Crude and $43 for Brent Crude.
However, TOP Ships has been a new level of awful. Rather than allow its stock to be delisted for failing to maintain a $1 minimum listing price, the company has reverse split nine times, including eight times since April 2014. Six of these reverse split have been 1-for-10, or larger. As a result, TOP Ships' all-time high, set back on Nov. 29, 2004, works out to a split-adjusted $182,498,394,112 a share. I didn't misplace a comma or forget a period. We're talking about a decline from about $182.5 billion dollars per split-adjusted share to $0.10 today.
It doesn't matter where you draw the start line, investors always seem to lose money with TOP Ships. Here are its returns based on various trailing time frames, as of July 16, 2020:
- 1-month: minus 29.65%
- 6-month: minus 88.74%
- 1-year: minus 98.90%
- 3-year, 5-year, 10-year, and 15-year: all just a fraction off of minus 100%
And I'm still not done. Over the past four months, TOP Ships has sold its common stock via registered direct offerings to raise capital 10 separate times! In aggregate, 751,427,500 shares, by my count, have been issued with these 10 offerings. TOP Ships is burying their shareholders under a constant barrage of dilution.
Despite this veritable sea of red flags, it's the 36th-most popular holding among Robinhood members. Since the year began, the number of Robinhood investors holding TOP Ships' stock has risen almost 100-fold, from around 2,100 to 208,000. For context, more Robinhood investors currently own TOP Ships than own shares of Netflix, Starbucks, or ExxonMobil.
Penny stocks are often penny stocks for a reason
It's not uncommon for new or young investors in the stock market to chase volatile stocks or to buy perceived-to-be "cheap" companies with a low share price. The thought process behind such a move is that it's a lot easier for a penny stock trading at $0.10 to double to $0.20 than it would be for, say, a $100 a share stock to double to $200 a share.
But this mode of thinking is usually incorrect. The fact is that penny stocks are often trading a low share price for a reason. In the case of TOP Ships, it's because the company has struggled operationally and has been diluting the daylights out of its shareholders to keep its business afloat. Typically, if you seek out great and/or game-changing businesses with proven track records, you're going to do a lot better over the long run than throwing darts at penny stocks like TOP Ships.
Take Apple (NASDAQ:AAPL) as a fine example. Once a high-flying growth stock, the king of innovation has settled into a more mature growth phase. It doesn't offer the wild volatility of a TOP Ships, nor is it perceived to be as affordable, with a triple-digit share price. But given the ability to purchase fractional shares with some brokerages, and with the understanding that the amount you invest, not the number of shares you own, is what truly matters, Apple has turned into a surefire winner.
Investors could have bought Apple four years ago for around $105 a share. Today, that vanilla investment is going for almost $387 a share, which is good enough for a 269% return, not including dividend payouts. Apple has leaned on its brand strength to drive consumer loyalty, and pivoted that loyalty into a new line of high-margin services and wearables that are growing at a significantly faster pace than its core products, like smartphones.
If you're a young or new investor who's excited about the prospect of taking hold of your financial future, I implore you not to be lured in by the idea of getting rich quick. Building wealth takes time, and it can be done with minimal hassle by simply buying into great businesses and allowing your investment thesis to take shape.