This Day On The Street
Continue to site
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

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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DSTI $0.05 0.00%
C $46.28 0.00%
FRP $13.26 0.00%
IMOS $16.82 0.00%
SIRI $3.95 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs