This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

The Dangers of Delisting

Once you break it apart, then, the delisting process is somewhat defanged. Still, few would argue that delisting is a good thing. Most institutional operations are not allowed to own delisted shares. News of a potential delisting, alone, can send shares plummeting. The fear of going from a liquid market to a much more illiquid market presents a risk that many can't stomach. Debt covenants requiring companies to stay listed on a major exchange can be triggered. Then, too, there's the actual underlying fundamentals driving the bid price lower to begin with.

Professor Tim Shumway at the University of Michigan's Ross School of Business says a study he published in the late 1990s showed that companies lose between 30% to 40% of their value when they move from a listing to the pink sheets. While that showing also included bankruptcies, there's a seeming takeaway message for investors.

"On average, you should probably sell before delisting," Shumway says.

Still, back on Sept. 21st, Shukla -- a finance professor himself at Syracuse's Whitman School of Management -- stayed on the sideline and didn't sell a share of DayStar. While more shares of the stock traded on that day than any other this year, and prices flowed from one extreme to the next, Shukla didn't panic. In fact, he still owns every share today and has no plans to sell.

You see, Shukla also teaches courses on investing -- and watching the share price over the past months, he knew the announcement was coming at some point. But he comes at the question of what to do in light of delisting and its impact on his own shares from a different place.

"I'm a believer in solar energy. "I'll either go down with them, or rise with them," chuckled Shulka, who also owns solar panels on his own home.

To be clear, Shulka isn't recommending that all investors in stocks on the delisting chopping block follow this course. In fact, talk to most experts like Shulka and they'll raise caution regarding the myriad potholes that face a delisted stock.

"The impact to the investor is that there will be less trading volume on the stock, since it's not being traded on the big board, and therefore, they are unlikely to get as good a price on the stock," Shulka says. "Essentially, when a stock is delisted, it's going from bad shape to an even more depressed state."

3 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,987.51 -61.49 -0.36%
S&P 500 1,985.54 -11.91 -0.60%
NASDAQ 4,567.5980 -24.2080 -0.53%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs