Tootsie Roll Industries (TR) Stock

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Contributor, Benzinga
Updated: September 27, 2021

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Candy and confectionery company Tootsie Roll Industries (NYSE: TR) has generated global headlines, but what gives? It turns out that TR stock is one of many publicly traded securities that attracted an army of activist retail investors — regular people who recognized a profit-making opportunity.

TR stock’s narrative, a clash between everyday investors and Wall Street hedge funds, makes the news due to everyday investors short selling stocks. These folks borrow shares of stock, immediately sell them, hoping that they will fall in price. If they do, short sellers buy back the shares they borrowed to fulfill the loan and pocket the difference as profit.

However, some retail investors caught onto this scheme and urged others on social media to deliberately buy shorted stocks, thereby causing losses for short traders and gains for bullish buyers.

  1. Pick a Brokerage

    Before getting involved with the incredible narrative underlining TR stock, you must first find a platform to be able to do just that. Thanks to rising technology, consumer demand and the integration of wide connectivity, you now have multiple options among online brokerages. Fierce competition has forced most players in this arena to offer compelling incentives such as commission-free trading.

    Do your homework before committing to a specific brokerage. A few factors can sway your decision, including incentives for joining, account minimum thresholds and inactivity fees. In addition, some platforms offer perks like free stock trading educational content.

    Don’t forget to add reputation and superior customer service to your checklist.

  2. Decide How Many Shares You Want

    While it's natural for you to think in terms of dollars and cents, your primary unit is the share count. When you make your purchase, your online brokerage will prompt you to input how many shares you want — not the dollar amount.

    Virtually all brokerages offer an in-platform dollar-to-share count calculator, but you can do it yourself. Simply take the amount you wish to invest and divide that by the target stock price.

    For instance, let’s say you want to invest $1,000 in TR stock at $38.78. You can secure 25 whole units ($1,000/$38.78 = 25.79). Some brokerages allow you to purchase fractional shares — part of a share — but not all platforms allow it.
    Also consider your risk tolerance. For wildly trading names like TR stock, only invest money you can lose if a total value erosion occurs.

  3. Choose Your Order Type

    Investing in publicly traded securities is one of the easiest ways for everyday individuals to grow capital. However, you should familiarize yourself with basic stock market concepts before you get started.

    Bid
    A bid refers to the maximum price that a buyer is willing to spend for a particular stock or commodity. The bid price will always be lower than the ask.

    Ask
    The ask represents the minimum price that a seller is willing to accept. The ask will always be lower than the bid.

    Spread
    Also known as the bid-ask spread, this figure represents the difference between the bid and ask price. It's best to think of the stock market as 2 sides of a negotiation between the buyer (you, the investor) and the seller (market maker). Buyers profit when their shares rise in value, whereas sellers profit from the difference between their stock acquisition price and your buying price.

    Limit Order
    A limit order is exactly what it sounds like — a predetermined you execute an order (either buying or selling a stock). Limit orders have the advantage of knowing exactly at what price you're transacting a deal. However, the primary disadvantage is that limit orders are not guaranteed to execute if the stock never hits that specified price.

    Market Order
    A market order executes a trade at the moment in time when you submit the request. Keep in mind that market orders automatically purchase shares at the ask price and sell shares at the bid price so it's not always the most favorable decision for you. But with a volatile asset like TR stock, you're not guaranteed that your limit order will be executed. Therefore, market orders give you assurances that you'll close the deal at the next available price.

    Stop-Loss Order
    A stop-loss order is basically an emergency valve for your portfolio. Suppose you have a heavy position in a volatile asset just like TR stock but you happen to be incredibly profitable. 

    By holding onto those shares, your profits are on "paper" only. A wild swing in the market could potentially ruin your portfolio. A predetermined stop-loss order triggers a sell when your target stock falls to your specified price. This prevents catastrophic losses in your portfolio. 
    Stop-loss orders execute at the next available price, which could be far lower than you anticipate if there are gaps between trading sessions (such as a high close on Monday and a much lower open on Tuesday).

    Stop-Limit Order
    A stop-limit order functions similarly to stop-loss orders but with an extra layer of protection. Rather than a stop-loss order selling your position at the next available price, you can specify your minimum acceptable exit position. This prevents your position from exiting at a crushingly low price and may afford you the benefit of a reactionary bounce back. However, there's no guarantee that a stock printing red ink will reach your minimum selling price. In that case, it would have been better to implement a stop-loss order.

  4. Execute Your Trade

    Your choice of order type will involve many factors such as market condition, the volatility of your target stock and overall interest in the shares, among others. More often than not, it comes down to how badly you want to invest in the company. If it's a must-have, a market order may be the best choice.

    However, limit orders afford you an entry point that you’re comfortable with. If you prefer greater control of your portfolio and hate surprises, go with limit orders.

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TR Stock History

As a confectionary-based investment, TR stock historically has held up well, particularly during the Great Recession. 

Tootsie Roll Industries' revenue peaked in 2012 at just under $550 million. With growth prospects appearing limited and a booming economy sending consumers to higher quality products, many investors abandoned TR stock in 2018.

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It has struggled to gain traction until retail activist traders decided to bid up shares in order to hurt hedge funds shorting TR.

Pros to Buying TR Stock

Think you might want to pull the trigger on TR stock? Here’s why you might want to:

  • Profiting from the power of the internet: These days, retail investors use platforms like Reddit to give billion-dollar hedge funds a taste of their own medicine.
  • Short squeeze is coming: Traders who short a stock hope that its price will fall so they can buy back borrowed shares and profit from the difference. But if the stock moves higher, they must cover their short position or risk suffering indefinite losses. This short squeeze is very bullish for long-side investors.
  • Rare political consensus: Political figures like Donald Trump, Jr. and Congresswoman Alexandria Ocasio-Cortez actually found themselves both passionately on the same side. This suggests that this movement is much more popular than you might think.

Cons to Buying TR Stock

On the flip side, follow these downsides:

  • Unprecedented circumstances: Usually, the big Wall Street power brokers win any competition with retail investors. This unprecedented turn of the tide, while newsworthy, means it’s anyone’s guess where it will go.
  • Hedge funds have more money, more connections: At the end of the day, big hedge funds have more money to support their positions than everyday investors. Further, Wall Street's elite have access to resources and connections that regular people do not. You might not profit from a staredown.
  • The longs can sell out: While the retail activism is a modern-day Robinhood tale, at some point, everyone has his price. After making ridiculous profits, early-bird investors will likely dump out of their positions, leaving those late to the game holding the bag.

Think Through Making a Quick Buck

Although TR stock and similar investments are making headlines throughout the world, it's important to realize that the crowd is not necessarily buying Tootsie Roll's equity because they believe in the business. Frankly, it's a quick way to make money.

That's not to say that you should avoid TR stock. Rather, you should only speculate if you understand the risk factors and are gambling with money you can afford to lose.