How Is It Possible?

I was on vacation and reading the financial news when I noticed that a company that had filed for and emerged from bankruptcy had its old company stock traded up 37% for the previous day. If you do the math someone made a lot of money. I mean a LOT of money!

How does a company that doesn't exist still keep trading even though there is nothing backing the stock?

The company, General Motors, its stock is still being traded, a phenomenon not unlike what happened when K-Mart filed for bankruptcy and emerged as the new K-Mart. People kept buying shares of the old company until one day it disappeared like the closing scene of the black and white television show, 'The Twilight Zone'. Over 91 million shares of the old K-Mart stock traded hands before the lights were finally turned off.

I remember scratching my head and wondering if someone knew something that I didn't know. The answer was no.

Folks either are clueless or think there is still a connection to the bankrupt company and there is some potential in the old company shares. I think this myth springs from the Chrysler bailout and how some people bought shares in the company and they soared in value under Iacocca's leadership. But, Chrysler never filed for bankruptcy!

The trading of valueless stock wouldn't bother me if the people buying the shares were rich folks with money to burn. Unfortunately many of these investors have no financial advisor, are looking for a quick rich scheme and cannot afford to lose one penny let alone the possible thousands they are throwing away.

Just as investors were embittered with the K-Mart fiasco today's bankrupt GM stock investors will also complain. There is plenty of warning to stay away- if they would only look.