The Liability Of Common Shares

Discussion in 'Risk Management' started by Nobert, Aug 26, 2021.

  1. Nobert

    Nobert

    Given the fact that one would have no right (especially a tiny retailer like me) to claim any rights to the assets of the company, during the event of Chapter 11, would it be right to assume, that in order to weight his risk properly, simple retailer should be buying equities, that represents the value of 50% below the fair price of an equity ?

    Simply put, even by paying a fair price for a common stock, you're still exposed to the risk so much, where you're almost over-paying ?

    Thank you.
     
    Bastion_01 and murray t turtle like this.
  2. None of this should ever matter to you. To claim "your share" of the assets, simply sell your stock. You should have a stop (hard or "in mind") at all times.
     
  3. Daal

    Daal

    Whether you are a retail investor or not, the vast majority of stocks are worth nothing in bankruptcy. Buying 50% bellow fair price is a good rule but not for the reasons you mentioned
     
    murray t turtle likes this.
  4. %%
    50% off sale can be a winner;
    but in the [specific]case you mentioned Nobert , sounds like its going to zero\goose egg. Put another way, why pay up for a house on fire?? IT could easy \be worth LESS than zero.
     
    Nobert likes this.
  5. Nobert

    Nobert

    Hey Murray,

    yes you're right. No reason to jump into a sinking boat.
    But what i had in mind,it's where the equity looked like a great investment in the first place but then for whatever ,,unexpected'' reason things went south.

    Thus to avoid even the slightest chance of this happening... [stops in the middle of writing]
    - sounds like perfectionism. Proper position sizing is the simplest solution.

    Case closed :)
     
    murray t turtle likes this.
  6. %%
    YES, proper position size sounds like the best.
    Single stocks do have a different risk reward;
    under $5 is much more risk+ applies especially to your question.:caution::caution::caution::caution::caution:
     
    Nobert likes this.
  7. you make a good point, and this is not even considering that most companies collapse over time, according to this HBR essay https://hbr.org/2016/12/the-scary-truth-about-corporate-survival
     
    Nobert likes this.