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charliebrownout
Heavy Crude
Joined: Apr 17, 2008
Posts: 291
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 Posted: Sat Oct 11, 2008 4:02 pm Post subject: General Question About Stock Prices |
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Just as a hypothetical: what happens when a company's stock becomes essentially worthless (shares worth measured in cents rather than dollars). Can that company keep functioning and come back or do they close their doors the day the stock value caves?
I'm only asking because I have a family member working for a company whose shares were worth $14 a couple of years ago $5 six months ago and just a little over $1 as of yesterday.
Anyone else in this situation???
Just curious. |
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ohanian
Light Sweet Crude
Joined: Oct 17, 2004
Posts: 1143
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| Posted: Sat Oct 11, 2008 4:37 pm Post subject: Re: General Question About Stock Prices |
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| as long as the company can pay its creditors and its employees, the company can keep on operating regardless of its stock price. |
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smallpoxgirl
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Joined: Nov 08, 2004
Posts: 6359
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| Posted: Sat Oct 11, 2008 5:55 pm Post subject: Re: General Question About Stock Prices |
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| charliebrownout wrote: | | Just as a hypothetical: what happens when a company's stock becomes essentially worthless (shares worth measured in cents rather than dollars). Can that company keep functioning and come back or do they close their doors the day the stock value caves? |
There certainly are companies that will loose 99% of their market cap (i.e. share price times number of circulating shares) and will continue on and years later even return to their prior position. It's the rarity. Most companies in that position go bankrupt.
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DantesPeak
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Joined: Oct 23, 2004
Posts: 5928
Location: New Jersey
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| Posted: Sat Oct 11, 2008 6:02 pm Post subject: Re: General Question About Stock Prices |
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Generally, but not always, if a company goes bankrupt the court will rule that the shares are wiped out. But even them, in some cases, bankrupt companies continue their existence, and may issue new stock one day (the old stock still being worthless).
In reality, many smaller companies never declare bankruptcy, but just seize their operations if they lose money.
This may come as a shock but about 1000 companies on the NASDAQ have seen the value of their stock go to pennies or almost zero since 2000. So investing in small companies is very risky, and it would not be wise to place much of one savings in any one small company.
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Tyler_JC
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Joined: Sep 25, 2004
Posts: 4690
Location: Boston, MA
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| Posted: Sat Oct 11, 2008 6:14 pm Post subject: Re: General Question About Stock Prices |
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Nortel Networks shares are down 99.9% from their peak in 2000.
However, the company continues to function.
Every time their shares fall below a certain level, they have a reverse stock split.
The company takes 10 of your shares and gives you one share in return that has 10X the value.
(Take 10 one dollar shares and give you 1 ten dollar share).
Then the shares can fall another 90% and the cycle continues.
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Boris555
Tar Sands
Joined: Feb 01, 2006
Posts: 62
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| Posted: Sat Oct 11, 2008 6:56 pm Post subject: Re: General Question About Stock Prices |
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The company I work for has gone from $20/share to $1.25/share in the past year.
I still sit at the same desk and make the same pay.
We're still in business, though we may get bought out by a bigger company soon. Rumors abound.
You just live with that sort of thing when you work in the private sector. My friends who work off the public teat (I did it for 10 years 'way back when) are horrified by the thought of having to find a real job. I'm horrified by their small paychecks.  |
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shady28
Heavy Crude
Joined: Jul 06, 2005
Posts: 367
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| Posted: Sat Oct 11, 2008 6:57 pm Post subject: Re: General Question About Stock Prices |
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| charliebrownout wrote: | Just as a hypothetical: what happens when a company's stock becomes essentially worthless (shares worth measured in cents rather than dollars). Can that company keep functioning and come back or do they close their doors the day the stock value caves?
I'm only asking because I have a family member working for a company whose shares were worth $14 a couple of years ago $5 six months ago and just a little over $1 as of yesterday.
Anyone else in this situation???
Just curious. |
As long as they do not go bankrupt, nothing happens.
The reduction in share value primarily affects the company in that they have very little ability to raise capital in the market by issuing new (or held) shares.
If the company goes bankrupt, shareholders are the first to be wiped out. The first to be paid are creditors (people to whom the company owes money). As a share holder, you are part owner of the company, and the owner gets nothing when his business goes under and owes more than it's worth.
Some companies do come back from bankruptcy, but the old shareholders rarely if ever get anything. Usually they come back when someone buys the wreckage from the creditors. Good recent examples of this are Sears and K-Mart. New shares were issued for the companies and the prior share holders were wiped out. From a stock perspective, they are entirely different companies from the old ones.
The company can easily raise the value of its shares by 1 - being profitable and 2 - sharing the profit with its shareholders.
A $1 stock that issues a .50c dividend, and does it regularly, will quickly become a $10 stock if not more.
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