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Stocks and buying them

Discussion in 'Sports and News' started by Rusty Shackleford, Jul 2, 2008.

  1. Rusty Shackleford

    Rusty Shackleford Active Member

    With General Motors now trading below $10 per share, what happens if you buy some of their stock and they go bankrupt?

    I was considering buying some and hanging onto it a while, but not if I lose out what I pay to buy the stock if they go bankrupt.
  2. Clerk Typist

    Clerk Typist Guest

    What happens is you almost surely lose your entire investment. Stockholders are way down on the list of creditors, if they're on there at all.
    I own some GM, bought at $25 some years back, and await a rebound they may never happen. Meanwhile, the dividend is $1 a year, so 25 cents per quarter per share. With a $10 stock, that's a 10 percent yield, but GM cut its dividend in half a while back, and I wouldn't be surprised if it happens again. After all, it did lose what, $38 billion last year?
    Buy a share of Google instead.
  3. poindexter

    poindexter Well-Known Member

    Don't buy GM at $10 - that is what's called catching a falling knife -- you can get hurt.

    Take a look at the unfunded liabilities of that company - they should be paying you to take a share.
  4. trifectarich

    trifectarich Well-Known Member

    Yep, you lose everything if you're holding stock of a company that goes kaput. If you want to buy a stock now and hold it for a couple of years, when (we all hope) we should be on better financial footing, there are a ton of good values, just loads of good companies whose stock has been hammered.
  5. maberger

    maberger Member

    anyone want to add any suggestions?

    my eye right now is on Markel (MKL), Cemex (CX) and Potash (POT), and also American Express (AXP).
  6. waterytart

    waterytart Active Member

    Rusty, there's a piece of wisdom that's been cited on Wall Street forever, and resurfaces whenever some company which will attract investor attention suffers a severe decline in its stock price.

    Q. Hey, I should pick up some [Consolidated Fuzz]. It's down to $6 a share. How much can I lose?

    A. 100%
  7. Ben_Hecht

    Ben_Hecht Active Member

    I know a guy who was able to retire comfortably after buying Chrysler at $2 during their previous crisis, thirty or so years ago.

    But that was when there was one more "dead cat" bounce to be had.

    That may not be in the cards, this time.
  8. trifectarich

    trifectarich Well-Known Member

    It's no secret the financials have taken a terrible beating so far this year. But if we get a grip on gas prices, which will allow people to get out and travel, spend and save, the U.S. economy will snap out of this funk.

    There are some companies whose shares are selling at attractive prices: American Express (down from the 60s to around 40), Wells Fargo (from the mid-30s to the mid- or high 20s), even Wachovia, which, at its current price, could be a takeover target.

    Do your homework, and good luck.
  9. poindexter

    poindexter Well-Known Member

    These financial stocks, just b/c they lost 50%, do not look attractive to me. Especially POS like Wachovia - they have a ton of shitty loans on their books - horrible loan products like Pick A Pay - which will start to reset this year and next. These are different from subprime, but cut from the same turd. Neg am loans which are going to go belly up.

    The A-holes at Wachovia finally decided to quit selling these loans 2 days ago. Wait until the shit hits the fan with these loans.

    Buyer beware with Wachovia. Wells Fargo thought they were smart buying Golden West, its nothing but a portfolio of shitty loans.
  10. trifectarich

    trifectarich Well-Known Member

    I know Wachovia made a bunch of stupid moves and it's paying dearly right now, but it's a huge player in this sector and I don't think this company is going bankrupt. I know it's not going to turn things around in a couple of months; it might take another six months or more, but for a stock you want to hold for a couple of years, it's tempting to me at this price. And I do not at all discount the prospect that it could be taken over by someone like Chase.
  11. The Big Ragu

    The Big Ragu Moderator Staff Member

    Don't touch GM. They need to somehow come up with $15 billion to fund operations for the next two years. In this environment, how is that going to be possible? The most likely scenario is that a garage sale starts soon. They need money and they have no way to raise it. They have carried a junk bond rating for several years now. A few months ago, Moody's downgraded their bonds from stable to negative. Moody's rating basically suggests that there is more than a 25 percent chance that GM defaults on their debt within the next four years. Given that, they can't just go out and issue more debt right now, never mind the yield they'd have to promise to even begin to entice bond investors. They have bonds already that are paying a 15 percent yield that are trading at around 57 cents on the dollar. That means that people expect the company to go bankrupt. If it steps into the junk bond market and tries to raise $15 billion more, the finance costs would be ridiculous. No one would even underwrite that debt. So unless some shining knight in armor comes in willing to lend GM a boatload of money in the private equity market, this is just ugly. There's cheap... and there's soon-to-be worthless. When the garage sale begins, someone will get paid. It won't be the guy holding the common stock certificate.
  12. waterytart

    waterytart Active Member

    My guess is GM's not going bankrupt. But I don't see a snapback -- just staggering along. In other words, dead money. And nothing says it can't drop a couple more points before the plateau.
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