quote:These equity interests would be cancelled upon the effectiveness of the proposed Plan of Reorganization.
Accordingly, we urge that caution be exercised with respect to investments in Delta's existing equity securities and any of Delta's liabilities and other securities. Investors and other interested parties can obtain information about Delta's Chapter 11 filing on the Internet at delta.com/restructure.
MARK HULBERT Triumph of hope over experience Commentary: Delta Air Lines shareholders should have known better By Mark Hulbert, MarketWatch Last Update: 12:10 AM ET May 2, 2007
ANNANDALE, Va. (MarketWatch) -- To great fanfare, Delta Air Lines emerged from bankruptcy last week. Its stock promptly dropped to 2 cents per share, and then stopped trading. If that surprises you, you weren't paying attention. It's been obvious for some time that anyone owning common stock in Delta Air Lines, Inc. (DALRQ : Delta Air Lines, Inc News , chart , profile , more Last: 0.02-0.03-66.04%
DALRQ0.02, -0.03, -66.0%) was going to receive precisely nothing in whatever settlement would eventually be reached in bankruptcy court. Yet, believe it or not, many apparently found this outcome surprising. As recently as one month ago, in fact, Delta shares traded hands for as much as 48 cents per share. In the week following the airline's declaration of bankruptcy in September 2005, furthermore, its shares traded for as high as $1. What possibly could investors have had in mind when they paid that much for the stock? As I quoted Morningstar as saying in a column I wrote in the wake of the company's September 2005 bankruptcy declaration, "virtually any outcome (of the bankruptcy proceedings)should result in the wiping out of shareholders." See Sept. 16, 2005, column I received lots of e-mail following that column a year and a half ago, suggesting numerous answers to my question about what investors had in mind. The leading hypothesis was that Delta's stock was being buoyed by short covering. But that doesn't make sense to me. Why would a short seller in Delta stock cover immediately if he knew that, by waiting, he could cover at near zero? Covering right away also had adverse tax consequences. I suspect that the true explanation involves, at least in part, what Samuel Johnson famously once said about remarrying following the end of an unhappy marriage: It's a triumph of hope over experience. If investors who bought Delta stock when the company was in bankruptcy believed that there might be something left over after paying all the creditors, they simply were deluding themselves. Even holders of Delta's bonds were not expecting to get back more than a tiny fraction of their money, and yet they needed to be paid in full before owners of common stock were to receive anything. Investors might have believed there wasn't much risk in Delta's stock, on the grounds that it was already trading for so low a price. If so, they were deluding themselves again: A stock that drops to zero is a 100% loss, no matter how low a price was paid for it initially. This case illustrates that the stock market isn't always as efficient as many researchers think it is. To be sure, it is very efficient in most cases. But it isn't always. And we should never assume that, just because the market is largely efficient, it is impossible for the market on some occasions to set a price that is completely irrational. This discussion reminds me of the apocryphal story of the distinguished finance professor being followed across the campus by a group of loyal graduate students. One of those grad students, upon spotting a $50 bill lying on the sidewalk, stops to pick it up only to be told by the professor not to bother, since if it really were a $50 bill, someone already would have picked it up. As the price of Delta stock over the last 19 months illustrates, sometimes there really are $50 bills sitting on the sidewalk. Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
-------------------- All post are my opinion. Do your own DD. Who's clicking your buy/sell button!? Posts: 7762 | From: Virginia | Registered: May 2006
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