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[QUOTE]Originally posted by TraderJones: [QB] Appearances can be deceiving. Just take General Motors Co.'s (GM) stock. The last price at which it traded before the company declared bankruptcy in June 2009 was 75 cents. In contrast, its share price at its IPO this week was $33. This has prompted some to conclude that shareholders who persevered in holding their stock throughout GM's bankruptcy turned a very handsome profit. How wrong they are, of course. The shares of the old GM and the new GM are completely unrelated. In fact, shares of the old GM--now called Motors Liquidation Co (MTLQQ) --closed Thursday's trading at just 18 cents each. And it's unclear why anyone would even pay that much for those shares. That's because Motors Liquidations's debts exceed its assets by several orders of magnitude. Ben Branch, a finance professor at the University of Massachusetts in Amherst, who has studied the performance of companies' stocks as they enter into and eventually emerge from bankruptcy, told me that there is "no way in hell that the shareholders of the old GM will get anything of value from their shares other than wallpaper." "They'd have to discover a lot of oil under one of the old GM plants" in order for the shares of the old GM to have any intrinsic worth, he added. Investors who persist in buying the stock of Motors Liquidation--including those who bought nearly 28 million shares on Thursday alone--are therefore simply being irrational, in Branch's opinion. Are investors on any more solid ground when buying shares of the new GM? Perhaps, since for them at least a plausible story can be told in which the company's earnings grow sufficiently to support a rising stock price. So they're not being outright irrational. Still, the historical data suggest that the odds aren't great that such a story will end up with a happy ending. According to Jay Ritter, a finance professor at the University of Florida who is one of academia's leading experts on IPOs, the average company that went public in this country over the last four decades ended up significantly lagging the market over its first several years as a publicly traded company. I think I found my answer. [/QB][/QUOTE]
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