Sears Holdings Corp. (fka SHLDQ)

[chemist72]

This one comment at end of article was great.

Its long but well-worth the read and it helped me understand the "psychology" of those still buying and trading SHLDQ shares!

Why Stock will trade for $ When it is Worthless!!

When a company has announced its stock will be worthless or it is 99.99% certain (since the common stock should not be allowed even one penny of value until all of the other classes of debt....bondholders, creditors etc. are made 100% whole and clearly that will not happen here)***, yet it trades (meaning people are buying it) people will ask two questions:
a.) If it will become worthless, how come it is selling for $.75 or $.50 or $.25 or whatever it trades at.
b.) If people are buying it they must know something? Who is buying?

This is very common with Chapter 11 companies in the "twilight zone" of
between when they file Chapter 11 and the final reorganization plan or liquidation becomes effective. In fact, one very bizarre case was Discovery Zone where on the very day the stock was cancelled the stock zoomed from ten cents to a dollar (for a few minutes) as people misunderstood the press release which talked about the "new" people who had taken over the company (without realizing that those "new" people also had been given ALL of the "new" stock and thus their stock was worthless.) This also happened several years ago with US Air and Kmart as they traded 120,000,000 and lots of people saw the prices spiking and rushed in without a clue only to see the stocks canceled at 4 PM that day!! The basic reasons seem to be:

a.) PSYCHOLOGY applied to three separate logic themes: ...1.) Those who should be selling do not as they feel "How much more do I have to lose...so may as well hold on till the very end" (Well, what you have to lose is the total value after commissions you could get by selling...so if you want to throw it away, please give it to me!) 2.) Desperation in that many can't accept that they have that big a loss. If they sell then it is like pulling the plug on a coma patient that is a loved one. 3) Investors seem to be brainwashed into thinking the action of the market is "right" and that the price of a stock is related somehow to the value of the company.
b.) GREED ...People see these things bob up and down and hope to "double"
their money with no research, no effort etc. Thus the prior bizarre behavior of some of these in Chapter 11 (like Kmart, United Airlines, Worldcom, Zenith, Boston Market, US Air, GTAT, Singer etc before the stock was cancelled) has reinforced "bad" behavior.
c.) CONFUSION AND IGNORANCE about what is truly happening in Chapter 11 and so people do buy because in a retailing example.. they might see good crowds in the store (or in Sears example, may see them make announcements on their "old" website which refer to the "new" company and not the "old stock" or may announce that the Die Hard brand is for sale and some people don't understand that this is not an asset of SHLDQ)...or in an airline example they hear that the "load factor" is better or the government will give a subsidy... and have a difficult time separating the future of this piece of paper called "old common stock" with the future of the company that is in bankruptcy. Yes, certain business products may make money for the company or its FUTURE owners...but unfortunately not for the benefit of the "old" common stock holders.
d.) TRADERS AND HYPESTERS who prey on b.) and c.) above to promote and
get people to buy through board postings and trying to create enough confusion and/or doubt so that people figure it is worth a "gamble."
e.) And SHORT COVERING of massive short positions usually taken as the stock is cascading towards bankruptcy...but which is usually wrung out after a few weeks (notwithstanding all the blabber you hear on message boards...and note that most people who yell short-squeeze etc. have probably never shorted a share in their lives and don't have a clue about the process!)
Also, sometimes there is a concerted effort to "squeeze" short positions by professionals (perhaps even hedge funds who claim the stock might have value??), but that usually runs out of steam after the "weakhanded" shorts (those who didn't allow enough margin room for a huge spike) are forced to buy in, and then the MANIPULATORS run off to find the next opportunity. However, once the company has made it 100% clear the stock will be canceled, the attempts at this kind of manipulation usually fall short as the true heavyweight shorters know that they are 100% sure of "winning" and so even if they get "bought in" they turn right around and sell back so the upward pressure of buy-ins are negated and the stock slowly wends its way toward zero...which is what it is worth when the company "emerges" and the stock is canceled. Also, if a stock is cancelled, the shorts NEVER have to cover so no "squeeze" at the end.

As to those who say..."Gee, there is lots of buying and the price is going up...so something must be happening".....I say It is absolute FALSE to look at upward movement in the stockprice and conclude "someone must know something" or "something good must be happening"....It is akin to looking over and seeing your neighbor jumping off his roof and assuming he knows how to FLY (unless you happen to see Eric flying??)!!!

*** Note: there are rare occasions where the "old" shareholders will be thrown a "bone" even if there is not full recovery for the other claims, just to avoid the hassle of having to deal with them, but usually this is in the form of something that has very, very little value (usually measured in a fraction of a penny.. like an out of the money warrant with the exercise price high enough so all creditors who received stock will have been made whole.. usually winds up worthless.) There can also be some consideration provided for "releases" by the shareholder class; however that does not happen very often. However, in the SHLDQ case, as Wyco has so accurately reported above, there will be NO recovery whatsoever when the judge bangs his gavel and the plan becomes effective (regardless of when that is.)