Finding out what old stock certificates are actually worth can be disappointing to say the least. Here is some stock market advice to make sure you never hold a worthless stock certificate.
Recently, one of our Inner Circle members asked for stock market advice about a stock certificate for Consolidated Denison Mines, a company that no longer trades on any stock exchange. Our research showed that Consolidated Denison had merged in 1960 with Can-Met Explorations and was renamed Denison Mines Limited. That company now trades in Toronto under the symbol DML. We gave him the number of the transfer agent for Denison Mines Limited to see if he could exchange his shares for those of the existing company.
Perhaps you have an old stock certificate like this in your files. The certificate may be registered in your name, or in the name of an earlier owner—a friend or relation who left it to you, or a total stranger. Is it worth something?
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One way to find out whether the certificate has any value is to try and deposit it in an account with a discount broker. If the issuing company’s corporate charter has been cancelled, the broker will reject the certificate and return it to you. If the stock has been taken over by another company, the broker may try to collect the securities or cash that the buying company paid for it.
Stock market advice: You don’t find pearls at the bottom of a junk drawer
Still, certificates like these almost always turn out to be worthless (although they may have some value in the field of scripophily—the study and collection of stock and bond certificates). People take care of items that have some value. For stock certificates, that means keeping them in a safe deposit box, or with a brokerage account. Certificates of defunct stocks are more likely to be deposited at the bottom of a file drawer, “just in case they ever come back to life.” They don’t.
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—it’s now much harder and more expensive to launch a new public company. But it’s still easier than starting a profitable new business.
This highlights important stock market advice that can keep your buys from winding up at the bottom of an old file drawer:
It’s essential to invest mainly in well-established stocks with a history of sales and earnings, if not profits. If you break this rule and invest in, say, junior mines or Internet start-ups, 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 should buy the stock with money you can afford to lose. You could be mistaken about its value. Someone might eventually find your low-quality buys gathering dust at the back of a drawer and wonder if they were ever worth anything.
“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.
Long-term investment strategies that won’t end up in a dusty attic
Finding old stock certificates that are worthless can make you feel like stock market investing is a mistake. It might indeed be a mistake—but only if you have nothing but long shots in your portfolio—that will ensure a high probability of you making meagre returns or losing money over long periods, rather than making the extraordinarily high returns you seek.
That’s why you need to be particularly cautious and selective when adding anything to your portfolio that offers the potential of those “extraordinarily” high returns. This advice is especially applicable to new investors, who may seek outsized returns from investments such as IPOs, penny stocks and stock options. These market vehicles are virtually certain to hold you back from long-term investment success.
Compound interest—earning interest on interest—can have an enormous ballooning effect on the value of an investment over the long-term. It should at be the core of your investment strategy
Compound interest can be considered one of the wonders of the investment world. This tip is especially important for young investors to learn. This tip’s benefits apply to both stock and fixed-return, interest-paying investments, like bonds. When you earn a return on past returns from stocks (both capital gains and dividends), the value of your investment can multiply. Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an accelerating rate.
To profit from this tip, you need to pay attention to steady drains on your capital, even seemingly small ones—like high brokerage commissions. If you’re losing out on (or missing out on a profit of) even 1% a year, it can have an enormous draining effect on your investments over a decade or two.
The markets for fungible goods (holdings of a type of commodity that can be easily replaced with an identical holding of the same commodity; for example, oil, interest rates and gold) are inherently unpredictable.
Markets like these are so enormous that there is no practical limit to how much you can trade in them. It follows that if you could predict their prices movements, you could wind up acquiring a measurable proportion of all the money in the world, and nobody ever does that. That’s why it’s a mistake to build your portfolio in such a way that you have to accurately predict the future direction of fungible goods like oil, interest rates or gold. The key to being a Successful Investor is to invest in well-managed companies. The unpredictability of the market facilitates the need for this rule. Well-managed companies can weather financial downturns and market downturns better than other companies.
You can follow our safety-conscious advice in the Canadian Wealth Advisor. That’s where we recommend stocks with built-in value that limits losses during downturns—and produces superior gains over time as markets rebound.
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