Share price goes to zero then goes back up

Question

I've never invested in shares, so I know very little to nothing. But there is a question I've always had about shares (feel free to treat me as stupid when explaining... Will actually help).

If I buy a share for say £60 and then the next day it drops to £0 but then say a week later its back up to £120. Could I sell off my share for £120 or is it a case of if it drops below what you buy it for that's it.. You can't make any money on it...

And can it drop to minus.. Like... -£200... Would I then end up owing money?

I know these will sound like stupid questions, but I just really want to know.

Same questions about stocks too... Or is it the same outcome?

Answer 1

You can sell your shares for whatever someone is willing to pay for them, so even if it drops to zero and back up to 120, you can sell them for 120 - ignoring the detail that you can't always trade for the last price, but assuming that someone is willing to pay 120 (the bid).

Now if a stock actually went to zero it would probably never trade again, but the main point is that you can sell for whatever the bid price is now, regardless of what it's been in the past.

And no, stocks cannot go below zero. Common Equity holders are not responsible for the debt of a company (at least for companies that are publicly traded), so they have no liability whatsoever, so there is not a scenario where the shareholders would have to pay to get rid of their shares. At worst they become worthless.

Answer 2

For a normal, everyday investor, "stock" and "share" are synonyms and can be used interchangably. The majority of articles written by the financial press will use the terms interchangably. If you happen to be an investment banker, there are differences between the terms that would be important to understand. But for normal humans, these differences are terribly unimportant.

The vast, vast, vast majority of companies and basically anything a normal human would invest in through a normal investment account are limited liability companies. That means that if the company racks up more debts than it can pay off, the company can just declare bankruptcy and the owners can't be sued for any shortfall. (Note that there are extraordinary situations where courts can "pierce the veil" and go after owners who criminally mismanage a company but those don't apply to a normal investor). Given this, it is impossible for a share price to fall below $0 and a share price will only go to $0 when a company is bankrupt.

There do exist unlimited liability companies where owners are liable for company debts. Normally, these are partnerships and buying in to the partnership is a very significant process with lots of paperwork and disclosures and whatnot. A share in an unlimited liability company could certainly go negative if it was likely that owners would need to come up with additional funds to pay off the company's debts. Unless you are a lawyer that is being asked to become a partner in your law firm or something similar, this is not something that you need to be concerned with.

In a normal investment account, it is generally possible to "sell short" a stock where you borrow a share, sell it, and have to buy it back later. If the price drops, you make money but if it rises, you have potentially unlimited liability. There are also options and other types of products that you can buy that could potentially lose more than what you invested. But that generally requires you to opt in and read some additional disclosures about risks and things like that. It's not something that a normal person would be liable to accidentally stumble into.

Answer 3

Stocks on a stock exchange don't trade for zero or less. What would it mean? If the stock price was $0, then for 1 cent I could buy an infinite number of shares.

I saw some discussion on another question on this forum about cases where a stock could have a negative value. I've never heard of such a thing and I don't see how it would work. If the stock price is -$10, does that mean that someone pays me $10 for every share of the stock that I agree to take? Maybe this is possible and there's some mechanics to make it make sense, but I've never heard of it.

The way it works, NORMALLY if not always, is that a stock prices ranges from 1 cent upwards. You buy the stock at some price. You sell it at some price. If you sell it at a higher price than you paid for it, you make money. If you sell it for less than you paid for it, you lose money.

So if, say, you buy 100 shares of stock in Fwacbar Corporation at $10 per share, that costs you 100 x $10 = $1000. If the stock price goes up to $15 and you sell, you get 100 x $15 = $1500 and you make a profit of $500.

In the worst case, if Fwacbar goes bankrupt, the value is now $0. You can no longer sell because no one is going to buy stock in a bankrupt company. You lose your $1000. But that's the most you can lose. Even if the company goes bankrupt with massive debts, they don't come after the stockholders for the difference. (Again, I've seen some discussion about exceptions to this, but I've never run in to such a case. If that's possible, I don't know how it works.)