When people ask why I prefer to trade penny stocks and preferably OTC stocks, my answer is that I prefer to trade against people who are less intelligent and experienced than I am. Considering all the smart people working at hedge funds I would likely be less intelligent and less experienced than the people trading big money on real stocks like Apple and Tesla. But every once in awhile the amount of stupidity I see in the trading of a stock astounds even me. Riviera Tool Corp (RIVT) is a recent example of this.
What happened with Riviera Tool Corp (RIVT)? After the market close on Wednesday, May 6th, the Detroit Free Press reported that Tesla (TSLA) was buying “Riviera Tool” of Grand Rapids, a tool and die supplier to Tesla. After Riviera Tool Corp (RIVT) started spiking Jason Shubnell of Benzinga reported the acquisition and specified that it was Riviera Tool Corp (RIVT) that Tesla was buying, which was wrong — it was Riviera Tool LLC that was acquired. Riviera Tool Corp had all its assets seized by creditors back in 2007 and had been an empty shell since then. For summaries of exactly how there came to be a public zombie shell Riviera Tool Corp and a private Riviera Tool LLC, see this SeekingAlpha article. After the market close on the first day Riviera Tool Corp was halted by FINRA (U3 halt) and it remains halted as I type this. See the intraday chart of RIVT on the day it spiked.
Back in 2013 a similar situation happened with Nestor Inc. (NEST) after Al Gore talked positively about Nest (maker of the Nest learning thermostat). Dumb investors/traders bought the stock of Nestor, which at the time was essentially a shell company with no assets, thinking it was Nest Inc. Take a look at the intraday charts of NEST over the three days it ran up and then dumped back down (days 1 and 2; day 3). Here is a description of what happened. When Google acquired Nest in early 2014 Nestor Inc stock had another run. The NY Times Dealbook had a nice description of what happened then.
The Nestor / Nest confusion wasn’t even the only time that happened in 2013. In the same month that year there was lots of talk about Twitter (TWTR) going public and the company started filing paperwork for its eventual IPO. Traders then bought stock in bankrupt (and essentially worthless shell) Tweeter Inc (TWTRQ) and the stock shot up from 1 cent to 14 cents. Even after the first run up and a halt to change the ticker to THEGQ so that people would not be confused the stock had a second run up two weeks later and ran from 2 cents to 10 cents.