Robinhood’s stock trading platform has done a good job of making investing affordable and even trendy for the masses, but it’s not perfect. First-time investors often start out as speculators and make mistakes.
We are seeing this in the cruise industry. Actions of Carnival, Royal Caribbeanand Norwegian Cruise Line They are among the most popular stocks for Robinhood’s 13 million users. Let’s go over some of the things speculators are going wrong with on cruise line stocks.
Image source: Getty Images.
1. They rely on low-priced stocks.
One of the biggest mistakes investors make early in their trading lives is assuming that low-priced stocks have the best appreciation potential. We see this on display here with stocks from the cruise line. Let’s look at the stock prices and take a look at how popular Carnival, Royal Caribbean and Norwegian Cruise Line are in terms of ownership among Robinhood users.
Data source: Robinhood. Popularity = the number of people who own this action in Robinhood.
It’s probably not a coincidence that the lower the share price, the steeper the penetration for Robinhood users. Carnival is the biggest player, so it’s not a big surprise to see him at the top. However, there is no reason for more Robinhood owners to own a piece of Norwegian Cruise Line, the distant bronze medalist in this tax race, than Royal Caribbean.
Royal Caribbean is the class act in this sea. It routinely publishes the strongest profit margins in the industry, and that is going to matter during the current hiatus and final recovery. Royal Caribbean shares have also not fallen as sharply as their two peers this year. Investors who gambled on Carnival or Norwegian Cruise Line just because they have low stock prices did not fare well in 2020.
2. High risk does not translate into high reward.
It’s mind-blowing to see Carnival and Norwegian Cruise Line, the riskiest cruise line stock, among the 14 most-owned stocks in the Robinhood universe. Carnival relies heavily on value-conscious first-time cruise passengers, and that target audience will stay away from an ocean getaway for a while. Norwegian Cruise Line has a more loyal clientele, but as the smallest of the three it has to be a favorite as the first to cave in if a shake occurs.
The industry is already reducing its fleet. We are seeing new ship deliveries, and Carnival announced last week that it will phase out several of its ships. All three companies have taken extreme measures to raise billions each to stay afloat during this crisis, but that will make it much more difficult to return to last year’s peak earnings per share levels.
Carnival should not be the eighth most popular share holding in the country; Fortunately, that’s only the case with Robinhood’s investors.
3. Changes take time
It’s not just cruise lines that are owned by dangerous levels in Robinhood. A couple of struggling airlines have even broader ownership among platform speculators. Robinhood’s main actions right now are a strange variety of disadvantaged industries.
Changes do not happen overnight. It will be a long time before airlines become profitable again, and the timeline for cruise line players needs to be even longer. Cruise industry restart dates continue to stretch, and even then it won’t be easy to fill ships with scary passengers during a global recession. Speculators are, by definition, impatient, and that strategy is not going to work with stocks on cruise lines.
