Question on Equities

Closed Thread
Page 1 of 2 1 2 LastLast
  1. #1

    Join Date
    Jun 2005
    Location
    in my home
    Posts
    3,451

    Question on Equities

    So i have a few questions about trading equities...

    i recently purchased an equity after they filed for bankruptcy, as I had strong mind they would recover. So far, they are proving just as i expected, but then i read some interesting information about stocks in general (not specific to this one i own):

    1. If you buy pink sheets (or stocks of companys under bankruptcy) they will be considered "common stock".

    2. If the company emerges from bankruptcy, there will be a new stock code issued, and the old "common stock" will become worthless.

    Is this true?
    If so, does that mean i should sell before they finally emerge and create the new stock?

    My assumption was that i can invest the equities during bankruptcy, and if they emerge i would continue to earn on the same right. otherwise...why would i invest in a "pink sheet" if it is always going to become worthless if the company does well? seems odd that investing in struggling companies would prove to be fruitless for investors if the company succeeds.

    Last edited by BenderBends; 09-12-2009 at 01:01 PM.

  2. #2

    Join Date
    Jun 2005
    Location
    in my home
    Posts
    3,451

    any thoughts?


  3. #3

    Join Date
    Sep 2008
    Location
    Tai Kok Tsui
    Posts
    144

    I am going to assume you are buying out of the US market as I don't think this is something you can do in all markets.

    If you have a read of this page Corporate Bankruptcy then you should get the info you need.

    Essentially there may be 2 stock codes for the same company so you need to make sure you are looking at the stock code that ends in a Q as that is the one you now hold. Yes you are correct that Pink Slip = Common stock so the above applies to your investment.

    Last edited by HKonelegger; 10-12-2009 at 04:37 PM.

  4. #4

    Join Date
    Jun 2005
    Location
    in my home
    Posts
    3,451
    Quote Originally Posted by HKonelegger:
    I am going to assume you are buying out of the US market as I don't think this is something you can do in all markets.

    If you have a read of this page Corporate Bankruptcy then you should get the info you need.

    Essentially there may be 2 stock codes for the same company so you need to make sure you are looking at the stock code that ends in a Q as that is the one you now hold. Yes you are correct that Pink Slip = Common stock so the above applies to your investment.
    thanks...that link is actually where i pulled that info in my OP.

    so...based on that, i still don't understand why pink sheets would be traded. why would someone invest in a company if the stock is guaranteed worthless if the company does well. shouldn't the pink sheet investors be transferred over to the new stock code since they helped invest in the company at its worst? sort of like an IPO?

    otherwise...what you are saying is i should bail out of the pink sheets now, if i have made a decent profit (which i have made 1K% profit on)

  5. #5

    Join Date
    Sep 2008
    Location
    Tai Kok Tsui
    Posts
    144

    Actually what the information indicates is that they will still keep trading under the old Pink Slip code but they may well issue a new code that runs simultaneously because they don't want people to see the code with the Q on it.

    You can still keep the Q suffix equity but that won't be highly promoted due to the fact that many investors will be put off by the fact the company was bankrupt.

    What I would do if I had got a good return already is take the money and invest in the new code from the same company as that is likely to have more trading on it and will probably grow a lot more now than the old code. Obviously this would only work if you think the company will continue to perform well.


  6. #6

    Join Date
    Jun 2005
    Location
    in my home
    Posts
    3,451

    i do think the company will continue to perform very well...hence why im torn with what to do.

    the question i have is then....when the new code is created...and then you have 2 codes coexisting...will the old code lose value fast? or will it continue to gain based on company performance?

    right now the new code has not been confirmed or issued, im just reading up on what may or may not happen to better prepare myself. i could sell now, but then i dont know when the new code will be made (if at all) and what price the new code will be at at opening.


  7. #7

    Join Date
    Sep 2008
    Location
    Tai Kok Tsui
    Posts
    144

    Touch call but I would say it is more likely to go down than anything else if they decide to release a new code. However if they have been doing as well as you say they are then they may decide against doing so because the past performance of that equity will be attractive to investors anyway.

    Its your money, essentially you are making an investment based on trying to guess an internal policy of the company... tricky to do but will be very profitable if you get it right. You seem to be well up on this companies profile so I think you should be able to make a good informed call either way.


  8. #8

    Join Date
    Dec 2009
    Location
    Kowloon Tong
    Posts
    9

    I'm not sure if this is going to be helpful but in the US it depends on the type of bankruptcy. In chapter 7 the business is liquidated and depending on your priority level you may or may not receive compensation. In chapter 11 the company is restructured and current equity holders are given new equity in the restructured firm in exchange for their old stock.

    I guess you've been discussing a chapter 11 possibility above, where a new stock code is made. In that case old equity owners may exchange for the new code.


  9. #9

    Join Date
    Jun 2005
    Location
    Hong Kong
    Posts
    23,205

    But not, presumably, necessarily at 1:1. Shareholders are last on the list of creditors, so if all those higher up the list have agreed as part of the restructuring to take equity instead of debt your original shareholding could be diluted many times over.


  10. #10

    Join Date
    Sep 2008
    Location
    Tai Kok Tsui
    Posts
    144

    Man two red blobs in 2 days? Somebody must not like me that much

    To the person who did that if you say I am wrong don't red blob me for it say it in the forum or else you aren't helping the OP are you? That is my essential understanding of how this works. I am not giving out financial advice it is the OP's decision as to what he does I am just offering my 2 cents worth of opinion on what might happen.

    If you have some more clear information then please feel free to share it with the rest of the class.


Closed Thread
Page 1 of 2 1 2 LastLast