Monday, December 1, 2008

Should you invest in Circuit City?

Looks like some ordinary investor is thinking about following the lead of Ricardo Salina Pliego, the Mexican billionaire who recently snapped up more than 30 million shares of Circuit City stock (CCTYQ).

This would-be investor asked USA Today's Matt Krantz:

Q: If I invest in Circuit City stock , could I lose my entire investment?

Here's a shocker. Krantz replied:
Yes. Yes. Yes.

Don't make any mistake about this. You don't want to be like scores of Kmart shareholders who were stunned when that retailer's reorganization completely wiped out their investments. ...

Even if a company emerges from bankruptcy, the SEC says, "in most cases the plan of reorganization will cancel the existing equity stock." ...

I cannot stress this enough. Please don't act surprised if you buy stock in a struggling company and find that your shares are worthless.

OK, I get it. Don't buy stock with a "Q" at the end of its name.

Krantz did write a more detailed analysis of Circuit City before the latest trouble. "But the basic analysis still holds," he says. "Investors beware."

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