Can an investor ever be stuck with a stock?

Question

Meaning, can a demand for a stock ever become so low that no one will buy it? or is there always someone that will buy stocks (e.g brokers) if you want to sell? I guess may be an explination on what happens to stocks when they are traded can also help. Thanks!

Answer 1

Yes, there are lots of examples in history of stock that has become worthless. Ask any stockholder of the old Kmart or of Enron.

Stock prices are largely determined by the expectation of the company's future profits. If people start to think that the company will not make money, the stock's demand and price falls. The stock of companies that are in financial trouble can go to pennies.

If nobody will buy, the price is zero, and the stockholders are stuck. This is usually associated with bankruptcy.

Brokers are people that arrange buys and sells for other people. They also provide other services for their customers, like doing the paperwork and storing the stock certificates.

When you want to buy a stock, you tell a broker (by message or online) what you want to buy, the price you will pay, and how many shares. The broker goes to the stockmarket , finds another broker who has some of that stock to sell, and negotiates a price. If he can get your price, he buys it for you.

The broker takes the money from your account, and gives you credit for the stock ownership. He stores the certificates unless you ask for them, so if you sell later he has the stock to sell.

The whole system is based on matching up people who want to sell with people who want to buy, then negotiating a price. The stock market helps the process along because of the very large number of people and stocks. The details get very complicated.

Good Luck

Answer 2

If no one wants to buy, the sellers will lower their price to make the deal more appealing. When a stock gets a bad reputation, the price falls fast until the buyers think that it's cheap enough to be a safe investment. Sometimes, I guess you can't get cheap enough.

Brokers buy with the same intentions as individual investors. The only people that will buy worthless stock are those that can use it to either take over the company or pump up the price and dump it when the market starts to mimic.

"Stuck" with a stock:
If you buy, expecting that a stock will rise, and it falls, you have the same two options you always have: buy and sell. You can buy more so that when the stock increases again, you'll profit. If the stock never does recover, then the stock you own is worth less. You can sell immediately and accept your losses, too.

You can also wait and do nothing with it until it's market value recovers, but it may be years until that happens. If you do this, you're stuck with the stock until it recovers - or until you accept your loss.

Answer 3

This is the exact problem I had with a wind energy stock that I loved. It is called Repower, symbol RPWSF.pk. It is a German stock that trades on the pink sheets. Days would pass, and there would be no trading volume at all. I ended up selling this stock and buying Gamesa, GCTAF.pk. This is another wind energy stock, but this one has more volume.

You should be very careful getting into stocks with low trading volumes. These stocks are typically vulnerable to manipulation of the trading prices, since any buy or sell trade can move the stock price.

If you are looking for investment ideas, you might consider http://www.top10traders.com - this is a free site that lets you create a portfolio of stocks with $100,000 in "play" money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can also read posts on investing from the best traders, as well as share your own investing ideas.

Here are this month's best traders:

http://www.top10traders.com/Top10Standings.aspx

Good luck!

Answer 4

Generally speaking there is always a market for a stock at some price. In other words there is a price at which someone will buy it. Most stocks have excellent liquidity meaning that they trade readily. This is due in part to market makers. These are firms whose funtion it is to buy and sell a particular stock to provide liquidity for the market. However, there are instances when prices can and do fluctuate dramatically. If for example a company announces that its earnings have fallen 30% when everyone had expected them to rise 20%, the price at which the stock will then trade is most likely to be 50% below the price at which it previously traded.

There are instances where an investor will indeed be stuck with a stock. Particularly, when a company declares bankrupcy. You are in essance left holding the bag.

Answer 5

Excellent question, and the answer is YES. When a stock is delisted from an exchange, it can be difficult to sell it... normally because it has plummeted in value. I know plenty of folks who have worthless stock certificates... they didn't sell when there was still a market. It happened to me in my early investment days... I bought a little company called River Oaks which manufactured mobile homes. I thought it was a great buy at just 25 cents a share... and it was still listed on the NYSE. What I didn't realize, of course, was that it was bankrupt and it was just a matter of time before it was delisted. Yes, I still have those old certificates somewhere... and they are indeed worthless. As you say, I'm stuck with a stock!

Answer 6

Thee are plenty of examples of stocks that have become worthless. Enron is the best example that comes to mind. A stock can becomes so worthless that even brokers will not buy it.

Answer 7

Unless the company is bankrupt, you can never be stuck with a stock, there will always someone willing to purchase it at some price, unless of course the company has declared it will be bankrupt.