A bankrupt company is enough to make an investor depressed enough to never buy a stock again, but that would be the wrong approach. Read on.
On occasion, a bankrupt company comes back from the dead. Sometimes bond holders end up with the company and/or get paid something on their original investment. But it is extremely rare for common shareholders to end up with much — if anything — in a bankruptcy filing.
Because of this, a bankruptcy can have a devastating psychological impact on an investor. It is, essentially, the ultimate failure. Your stock, which you once loved, or at least liked enough to buy, has gone tocoming back. It is enough to make one depressed enough to never buy a stock again.Article content
But that would be the wrong approach. Let’s play therapist today and offer five solutions to help fight the depression of owning a stock that heads into bankruptcy. For this exercise, we will reference the recent bankruptcy filing of , a once-popular $1.4-billion company in the clean-energy space that surprised many investors by filing for bankruptcy protection last September. Here goes.Whenever I have a losing investment, I remember my math classes. With any long position in an equity, the most you can ever lose is 100 per cent. In a bankruptcy, -100 per cent is most likely your final investment return. But you can make 200, 400, even 1,000 per cent or more when a stock works out well.
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