You may have an old stock certificate or two in your files, issued by an unfamiliar firm. Perhaps you bought the stock yourself, or inherited it. The stock market pick’s certificate may be registered in your name, or in the name of an earlier owner — the friend or relation who left it to you, or a total stranger.
One way to determine the value of a certificate like this, if any, is to try to deposit it in an account with a discount broker. If the issuing company’s corporate charter has been cancelled, the discount broker will reject the certificate and return it to you. If the stock has been taken over by another company, the discount broker will try to collect the securities or cash that the buying company paid for it.
Why you never find high-quality stock market picks in the bottom of the junk drawer
In almost all cases, certificates like these turn out to be worthless. The reason is simple. People tend to take care of items that have some value. For stock certificates, that means keeping them in a safe deposit box, or depositing them in a brokerage account. Certificates of defunct stock market picks are more likely to be deposited at the bottom of a file drawer, “just in case they ever come back to life.” They never do.
Another reason why most old stock certificates are worthless is simple arithmetic: It’s much easier to launch a company and sell stock to the public than to launch a business and make a success of it. That was truer decades ago than it is today, of course—it’s now much harder and more expensive to launch a new public company. But it’s still easier than launching a profitable new business.
This highlights a couple of key investment concepts:
- It’s essential to invest mainly in well-established stock market picks that have some history of sales and earnings, if not profits. If you break this rule and invest in, say, junior mines or Internet startups, you should only do so if you have a high opinion of the value of the junior’s assets and/or business plan, and you buy the stock with money you can afford to lose. After all, you could be mistaken about that value. Your low-quality buys might eventually wind up in the bottom of somebody’s file drawer.
- “Holding for the long term” only pays off with investments in high-quality, well-established companies. If you buy low-quality or speculative stocks, time tends to work against you. The longer you hold them, the likelier you are to lose money.
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