Photo Source: awornpath.com
As consumers, we mourn the demise of Borders bookstores. But as investors, we can learn much from the tragic tale.
Borders Group, which went public in 1995, reached a high of about $40 per share in 1998. But in February 2011, the company filed Chapter 11 bankruptcy and on Friday, liquidation began. Its stock now trades at less than 3 cents per share.
It’s a very unhappy ending for shareholders. During bankruptcy, creditors, bondholders and shareholders line up for reimbursement, but often not everyone gets paid. There’s a hierarchy, and common shareholders come last.
So whether the company restructures and emerges from bankruptcy (with a new share class), or liquidates and ultimately goes kaput, existing equity investors are often left with nada.
That’s scary, but avoidable:
- If stocks make you nervous, embrace mutual funds and exchange-traded funds.
- If investing in stocks, pay attention. Read the quarterly reports, talk to friends, stay up on the news. (Entering the ticker into Yahoo Finance will give you the latest.)
- If your stock is losing value—and you don’t think it will recover—talk to a tax pro about selling at a loss and getting a tax break.