A Fool's Game - Riviera Tool Company

Joel Elconin is the co-host of Benzinga's #PreMarket Prep, a daily trading idea radio show.

'' Shares of Riviera Tool Company RVIT are halted in Friday's session in a bizarre tale of investors getting carrined away in "buying the hot stock" without doing their homework first. On Thursday, misguided investors looking for a quick profit piled into the issue upon hearing the news that Tesla Motors TSLA was acquiring Riviera Tool, LLC in Grand Rapids, MI. It should be noted Tesla Motors did not disclose a price being paid for the company. Therefore. investors that rushed purchase the issue, they thought was being acquired has no reasonable basis for what the shares could eventually be worth. This marks the the first time the company has established a presence in the home state of the Motor City. As a result, Riviera Tool Company, not Riveria Tool Inc, which is not publicly traded, soared from its closing price on April 23 ($0.005) to $0.60 on monster 16M shares, before falling back to close at $0.225. At the pinnacle of the mania the issue had nearly a 12,000 percent gain before closing with only a 4400 percent gain. Now with the shares halted, with no announcement of when it will resume traders, thousands of investors who purchased the issue in haste will most likely lose of all their investment when and if the issue reopens. A few lessons to be learned from this frenzied trading action. First of all, when engaging in such speculative activity at least get the name of the company correct. In this case. investors were buying Riviera Took Company, not Riveria Tool Inc, a privately held company. Next, attempt to confirm a potential price in which a company for the company being acquired. This will the investor to establish a risk-reward ratio that is commensurate with their trading style. Once again, this information was not revealed by Tesla Motors in it news release. If these measures do not keep you out of the issue, then a least take a glance at the company's recent trading action. If one had reviewed the recent activity in Riviera Tool Co., they would have noticed that the last time it traded at all was on April 23 for only 10,000 shares and the time before was on April 17 for another 10,000 shares/. The only other time it traded in April was on April 1, when 103,800 shares changed hands. In this day and age of mechanized and algorithmic trading it is not surprising that this type of trading action ttok place and very well may happen again. However, if you are the human being at the keyboard that engages in such action, you have no one to blame but yourself.