GM: No, Really, Stop Buying our Stock

Posted: June 11, 2009

General Motors would like to remind you that it's worthless. It's bankrupt. It's gone. It has no value.

The Los Angeles Times reports, "General Motors Corp. filed for bankruptcy protection, got kicked off the New York Stock Exchange and out of the Dow Jones industrial average. And its stock has mostly been rising ever since. In fact, GM has been one of the hottest issues on Wall Street over the last six trading sessions, surging from 61 cents to today's closing price of $1.59 in the electronic market -- a gain of 161%."

The company is trying hard to warn investors away. "GM stock is expected to be worthless," Tom Wilkinson, director of GM News Relations, told the Detroit Free Press. "We are not sure why anyone is still buying it."

The company issued a press release explaining, "While GM does not control the market or its stock price, GM management strongly believes that any recovery for the common stockholders in the chapter 11 bankruptcy process is highly unlikely, even under the most optimistic of scenarios."

Still, the Wall Street Journal notes, "The phenomenon of stocks guaranteed to be worthless that nonetheless boggle the mind by trading at $1 or higher is nothing new on Wall Street, but the explanation remains as elusive as ever. Investors who own worthless shares can write off the losses in some cases as though they had sold them, tax experts say. GM shares apparently qualify for the write-offs, tax analyst Robert Willens says." 

The Journal's MarketBeat blog has another theory. "The Greater Fool theory is probably the best explanation," they write. "People are buying GM's shares because they believe they can sell them to someone more foolish at a later date. With more than 68 million shares traded on a given day, there's apparently no shortage of fools."

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