question for stock guru

[YourPilotFriend]

It's an over the counter penny stock that won;t be around much longer. Hey but isn't it nice to find a quarter on the street and know you could be the majority shareholder.

 

[Traderd]

That's correct. USAir issued new stock and the old shares were absolutely worthless. This isn't a good gamble unless you have lots of money to throw away.

In a world where capital is superior to labor, pink sheets can attract risk from those who posses little of the former. The largest risk is liquidity (or the lack thereof). DALRQ is an example of the liquidity issue; on 9/18 it traded 18M shares with a range $1.16 - $1.78. Yesterday it traded 770K shares with a range $1.32 - $1.36. It looks to be forming a bearish pennant pattern but I wouldn't risk any money on that observation. You can get a lot of shares for very little money at the last price $1.33 (1243 EST) but with no one making the market you may not be able to exercise any reasonable stop loss. Pretty much the norm for these things. Not all OTC stocks are BK of course, it is really a matter of exchange listings.

 

[Benhuntn]

Stocks of bkc companies are traded to allow the holders a chance to sell at a loss so they can sell and write the loss off taxes. If a stock went straight to "0" it would have no value and hence holders couldn't write off the loss. A stock must have a value inorder to write off the loss. "0" is not a value. The only stock that may have a value is prefered stock. These stock holders are payed new stock after the bond holders if there is any new stock left. Thus the name prefered.

 

[SNOWBUM]

Stocks of bkc companies are traded to allow the holders a chance to sell at a loss so they can sell and write the loss off taxes. If a stock went straight to "0" it would have no value and hence holders couldn't write off the loss. A stock must have a value inorder to write off the loss. "0" is not a value. The only stock that may have a value is prefered stock. These stock holders are payed new stock after the bond holders if there is any new stock left. Thus the name prefered.

not true benhum, if the company you own stock in goes chptr 7 or if in chptr 11 they issue new stock and your old one goes to "0", when you do you taxes you would write the value of you stock as "worthless", and deduct $3,000/year until you are done.

 

[radarlove]

It looks to be forming a bearish pennant pattern

Oh jeez. I bet you read tea leaves, too.

 

[igneousy2]

It all depends on the reorginization plan that is approved by the BK judge. NOT ALL BK's result in the reissue of new stock. If there is enough money to pay off senior creditors without issuing new stock it will be done.

On June 9, 2003 Hawaiian Airlines traded at .29 cents a share. You could have picked up 34,400 shares for $10,000 including the commission. Nobody bought because stocks are ALWAYS worthless after BK. On September 6, 2004 Hawaiian Airlines traded at $8.75 per share. Your $10,000 investment would now be worth over $300,000 in a little more than a year.

Now let's talk about the stocks talked about here...you bought $10,000 the first time US Air went BK...you lost $10,000, the 2nd time $10,000, now $20,000, you bought UAL $10,000 total of $30,000 so far...now you buy Hawaiian and it hits..you are up $270,000.

Of course it's risky...but the up side is HUGE...the stocks are trading because people are taking calculated risks and hoping for a huge upside. I thought about Hawaiian...could of, would of, should of.

Later

 

[Traderd]

Oh jeez. I bet you read tea leaves, too.

No tea leaves here, not even Tarot cards. Thought about calling Ms. Cleo but she is no longer in business.

 

[Benhuntn]

Sorry to burst your bubble but you need a new accountant. If your stock is worth zero. You can not write it off unless your broker will give you a worthless stock repurchase. So there is no 3000.00 a yr write off. Look at the tax laws again my friend. You must sell the stock at a price and a loss then you can write it off. If it goes to zero and can't be sold, you have no loss and no write-off.

 

[Traderd]

Sorry to burst your bubble but you need a new accountant. If your stock is worth zero. You can not write it off unless your broker will give you a worthless stock repurchase. So there is no 3000.00 a yr write off. Look at the tax laws again my friend. You must sell the stock at a price and a loss then you can write it off. If it goes to zero and can't be sold, you have no loss and no write-off.

Are you sure? As I read Pub 17, Part 14, page 94 - Worthless Securities, the IRS appears to allow the loss to be included on your Schedule D.

Worthless Securities. Stock, stock rights and bonds (other than those held for sale by a securities dealer) that become worthless during the tax year are treated as though they were sold on the last day of the tax year. This affects whether your capital loss is long term or short term. See Holdings Period, later.

In addition, Pub 17 states:

How to report loss. Report worthless securities on Schedule D (1040), line 1 or line 8, whichever applies. In column (c) and (d) enter "Worthless" . Enter the amount of your loss in parentheses in column (f).

It is my understanding that the only real issue is that you must be able to prove the security to be worthless if challenged (read audited) That the security is delisted or the underlying entity is bankrupt is not considered sufficient by the IRS. A cessation of operations and liquidation where 100% of assets have been distributed to creditors seems to be the test.

So it looks like a security that is worthless qualifies for a total write off in the year it became worthless (the treated as though they were sold comment). Sound right?

What is your source regarding the requirement for the worthless stock repurchase?

 

[Benhuntn]

So we are both correct. Most companies never quite make it to zero. I will give you an example that you can look at for yourself. Adair intl. oil and gas. Symbol "aigie" has been bkc for 5 yrs, the company does not exist. Yet it shows a value of .02. Try and buy it for that. You can't it is not traded anymore. I sold that stock to my broker as worthless so I could unload it and then claim the loss. But it still shows a value. If it had been zero I couldn't have sold it and could not have gotten the loss. I think we are both right you more than me.