Why GM Is Not Zero

by Manshu on May 29, 2009

in Investments

A few days ago, I wrote about the GM bankruptcy and how the stock was worth nothing. Today the stock is still trading at 75 cents and I found out something very interesting about this.

From Barrons:

The mystery is that it isn’t trading at zero. That’s what the common is worth. Goosegg. Nadda. Zip. Zilch. Nothing.

So why’s it holding above 78 cents?

It’s still in indexes. It’s still in the S&P 500. And will be so until Standard & Poor’s reacts to the bankruptcy filing and replaces the stock with that of a viable company.

And until then, index funds have to own the stock.

Some of the biggest remaining shareholders are State Street, Vanguard and Barclays. Basically, the indexers.

So even if the Index funds don’t want to own it because the stock is worthless, they have no other option but to own it because it is part of the index they track. Very interesting.

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