Does it make sense to buy shares of bankrupt companies?

It sounds doubtful, but stocks of bankrupt companies are sold and bought. On this background there can even be their growth. But is there any objective point in such buying?

Who buys bankruptcy stocks?

The increased demand for the stock of bankrupt firms, especially U.S. firms, came up sharply after the popularization of online investing applications.

Now not only stockbrokers and brokers are engaged in stock operations, but also ordinary people by downloading a platform like Robinhood. In such applications it is possible to invest from $1 in one click.

Inexperienced investors more often buy what is cheaper. And it is often the depreciated securities of bankrupt companies. People who know what is happening on the stock market do not make such purchases.

Why are bankrupt stocks rising?

The financial summaries began to show cases when shares of already bankrupt companies began to rise. This is a surprising process for the classical market, but it is understandable.

The unexpected growth of bankruptcies is due to an increase in demand. Thousands of people begin to buy cheap stocks in droves, and the stock exchange reacts by increasing the price.

Some even manage to make a little money in the process, but there's nothing serious about this growth.

Bias in buying bankruptcy stocks

Beginning investors may consider buying such stocks. But experienced brokers do not advise investing in bankrupt companies.

The growth described above is artificial, and therefore it is extremely short-term. As soon as the buying stops, the price will go back down to the minimum or stop.

It is impossible to receive dividends from the shares of bankrupt companies, because their affiliated firms are no longer operating. There is nothing behind the securities, and they have no real value.

Buying is possible in order to sell, but only at the moment of immediate growth. Objectively speaking, such an investment is a direct loss of money.

For more successful investments, you should study the history of companies, and stay away from working with bankrupt firms.

[tie_tooltip text="Dear reader, have you had experience buying such stocks?" gravity="n"]Dear reader, have you had experience buying such stocks?[/tie_tooltip]

Leave a Reply

Back to top button