What Happens if a Stock Goes to Zero or Negative? (2024)

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Can a stock go to zero? The answer is yes — and for many investors, there’s no scarier thought.

But what happens if a stock goes to zero? What does it mean for the company? Can you lose all your money in stocks? Further, what happens when your stock goes negative?

In this article, I’ll answer all of these burning questions and more — plus, I’ll offer some proactive ways to help avoid getting burned.

The Bottom Line: What Happens if a Stock Goes to Zero?

Can a stock go to zero? Simple answer: Yes.

Sadly, it’s entirely possible for this to happen. But what happens if a stock goes to zero?

When a stock’s value falls to zero, or near zero, it typically signals that the company is bankrupt. The stocks are frozen and unless the company restructures, it’s likely you will lose your investment.

A few notable examples include now-defunct Blockbuster Inc (NYSE: BBI), Eastman Kodak Company (NYSE: KODK), and RadioShack (NYSE: RSH).

Can Stocks Go Negative?

If you’re wondering what happens when your stock goes negative or asking, “can stocks go negative?”

The answer is no.

While a stock’s value can fall to zero, it cannot go negative.

You will never owe money on a stock that drops to zero, though, sadly, you can lose more money than you initially invested.

Advanced techniques such as short selling, margin (leveraged) trading, and buy put options could cause you to lose more money than you invested, since it involves borrowing money.

What Happens if a Stock Goes to Zero?What are Your Options?

If a company’s stock gets low, they typically go into bankruptcy. Once that happens, the government puts a freeze on the stock.

But, what happens if a stock goes to zero? Does this mean a total loss?

Maybe … Maybe not…

The company could file Chapter 11 Bankruptcy, restructure, and re-release the stocks. If this happens, you can reevaluate and develop an updated strategy with your newly unfrozen stocks. Unfortunately, this process could take several months to a year.

If it doesn’t restructure, you still might have some options…

• File a Tax Write Off for Your Loss
• Get Compensation From Bankruptcy Payoff (This is unlikely to be much as shareholders get paid last…)
• File a Lawsuit

Attempting to force compensation can be challenging and complex. I highly recommend talking to a lawyer or accountant.

What Makes Stocks Go to Zero?

Several things (or a combination of things) can cause a stock’s value to plummet, including:

• Poor Corporate Management (Like Toys ‘R’ UsNYSE: VNO)
• Weak Financial Performance (Like Blockbuster Inc.NYSE: BBI)
• Corporate Fraud or Major Scandal (Like Enron CorporationNASDAQ: ENE)
• Economic Downturns/Industry Disruption (Like Eastman Kodak CompanyNYSE: KODK)
• Regulatory Freezes Due To Illegal Activity or Regulation Breaches (Like PG&ECorporationNYSE:PCG)

How Companies Keep a Stock Price From Going to Zero

There are few things worse for a company than going bankrupt. Fortunately, that means most companies will do everything they can to course-correct. This includes:

• Reverse stock split (decreasing the number of outstanding shares and increasing the price per share)
• Repurchasing Undervalued Shares
• Increasing sales & Revenues Without Increasing Costs
• Raise Money

Case Study: What Actually Happens if a Stock Goes to Zero?

Learning the theory is ok, but what happens if a stock goes to zero in real life? Can you lose all your money in stocks?

Let’s look at some real-life examples.

Enron

Few examples are as infamous as the energy company Enron (NASDAQ: ENE).

In the early 2000s, Enron, a seemingly high-flying stock, was priced at $90.75.

But, its attempt to conceal massive losses and toxic assets came to light, making investors and analysts suspicious. Their stock price plummeted.

By the time Enron declared bankruptcy in December 2001, its stock was trading at just $0.26 and investors lost everything invested in the company. However, the SEC awarded $7.2 billion to shareholders, since the fraud was so prevalent.

More Positive Examples

Thankfully, Enron is an anomaly. Here are some other examples with happier endings:

Hertz

Hertz (NASDAQ: HTZ) filed for bankruptcy in 2020. But it reemerged a year later.

They received more than $5.9 billion of new equity from investors, reduced corporate debt by nearly 80%, and got back on track for investors. Today, its stock trades at roughly $17/share.

Apple

Apple (NASDAQ: AAPL) nearly went bankrupt in 1997, but its biggest rival, Microsoft, of all companies, gave them a $150 million investment. It turned the company around and helped it become the $180+/stock it is today.

Can You Profit on Falling Stock Prices?

Yes … But it can be risky. In fact, you could end upowing more than you initially invested.

Let’s talk about buying puts and short selling.

Short Selling

Short selling is a strategy that involves borrowing shares of a stock and selling them, hoping the stock’s price will fall.

If the price falls, the short seller can buy back the shares at a lower price, return them to the lender, and pocket the difference as profit.

Buying Puts

A put option gives the holder the right to sell a certain number of shares at a predetermined price within a set time period.

If the stock’s price falls below the strike price, the holder can exercise the option and sell the shares at the higher strike price, making a profit.

How to Avoid Losing Money When a Stock Goes to Zero

Can you lose all your money in stocks?

Sure. But, it’s unlikely if you know what you are doing and choose the right strategy. These resources could help:

Courses and Education

There are no guarantees, but education can make a tremendous difference in the success or failure of your investment portfolio.

Finding a quality educational source can answer questions like: Can a stock go tozero? What happens when your stock goes negative? Can stocks go negative? How can I avoid investing in stocks that lose money?

…and more.

Fortunately, you don’t have to spend the $40,000+ it costs to get a degree in college to learn how to invest successfully.

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WallStreetZen Blog – Best Free Resource

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Tools

If you talk to any seasoned trader, they will swear by having the right investment tools. If you want to save money, time, and stress, partner with the right virtual equipment.

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Features:

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Radical X13 EZ Trading Computer – Best Trading Computer

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Benzinga Pro – Best Real-Time News

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Brokers

Choosing the right broker can make a big difference in your trading experience. A bad broker can be expensive, unsecure, and too slow to allow you to buy/sell at the price you want.

Don’t make the costly mistake of going with the wrong broker.

eToro – Best for Beginners

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Tradestation – Best for Advanced Traders

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Who it’s good for: If you’re an advanced trader, consider Tradestation.

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Nightmare Scenario: Can You Lose All Your Money in Stocks?

So, the real question arises: What happens if a stock goes to zero for each of your investments? Can you lose all your money in stocks?

Technically, yes.

There are no guarantees when investing, but with the right education, tools, and hedging and diversification strategies, it’s very unlikely.

Final Word

The prospect of a stock’s value falling to zero can be a daunting one.

Investing is not without risks, but with the right education, the right broker, and tools such as eToro Demo Practice Platformor Benzinga Pro, you can dramatically lower the risk of losing money in your investments.

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