What Happens If a Stock Goes to Zero? | Titan (2024)

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What happens if a stock goes to zero?

What this means for investors

What determines a stock’s price?

What can cause a stock to lose value?

Who buys stocks that go to zero?

Examples of stocks that went to zero

How does a company become worthless?

Preventing a share price from going to zero

What this means for you


Stock Trading

What Happens If a Stock Goes to Zero?

Jan 31, 2024


8 min read

A stock can plummet to zero — but what are the implications of a stock that is worth nothing?

What Happens If a Stock Goes to Zero? | Titan (1)

Every financial advisor or professional investor will tell you the same thing: all investing comes with inherent risk. And when you’re buying individual stock — rather than investing in index funds or ETFs, for example — it’s more likely that one of your investments will end up losing you money. So what happens when a stock doesn’t just lose you money, but goes to zero and wipes out completely?

What happens if a stock goes to zero?

When a stock's price falls to zero, a shareholder's holdings in this stock become worthless.

Major stock exchanges actually delist shares once they fall below specific price values. The New York Stock exchange (NYSE), for instance, will remove stocks if the share price remains below one dollar for 30 consecutive days.

A delisted stock loses the privilege of appearing on popular stock exchanges and because of this, no buying or selling of this stock can occur through typical methods. Instead, the stock is considered over-the-counter (OTC) and appears on a separate OTC bulletin board. This bulletin board is known as the “pink sheets” by speculators who want to engage in bargain trading on alternative exchanges.

If a stock can fall to zero, can it fall below zero? In other words, can you lose more than you initially invested in a stock? As long as you’re not borrowing money on margin from your broker to make your stock purchases, the answer to both of these questions is no.

What this means for investors

The volatility of the stock market is unavoidable. If you’re choosing to invest in it, you have to be prepared to accept a certain level of risk. It’s also true that some stocks will fall precipitously and lose all their value. That said, whether or not an investor experiences financial loss or gain in the case of a stock reaching zero depends on whether an investor is in a long- or short-term position.

The average investor (i.e., the long-term investor) is usually devastated to watch their stock plummet, but a stock plummeting might be good for a short-term investor. This is because they try to sell stocks “short.”

In a short sale, an investor borrows shares in a company and sells them, predicting that the stock will fall in value so that they can then buy the stock at a lower price, return the loan, and keep the difference for themselves as profit.

Shorting stocks is very risky. If we take a $10 stock, for example, the maximum an investor can lose if that stock falls is $10. But if you’re “short” and the stock goes to $100, you lose $90. The hedge fund Melvin Capital closed in 2022 after shorting its shares of AMC Entertainment and other “meme” stocks, only to see these stocks skyrocket in price, ultimately leading to billions in losses.

At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.

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What determines a stock’s price?

Supply and demand economics are the main driver in what makes stock prices go up and down. If demand is high, for example, people buy stocks, causing the price of that stock to rise. If demand is low for a certain stock, investors might choose to sell, causing prices to fall — and sometimes with dramatic speed.

Companies sustain demand for their shares by running dependably profitable businesses. But this is difficult to do, especially in a poor economy. Most startups fail and no company — no matter how established — will report increased earnings for every quarter of their existence.

What can cause a stock to lose value?

Again, a stock loses value if demand for that stock decreases. Contributing factors might include:

  • Slowed growth in a company’s revenue — or a loss in revenue.
  • Widespread perception that a company’s shares are overvalued, especially if a speculative growth company is involved (e.g., the dot-com bubble).
  • Negative investor sentiment following a shakeup in leadership, legal issues, or a management scandal.

Who buys stocks that go to zero?

When a stock reaches zero or dips to a level that disqualifies it from being listed on a major exchange, its shares move to over-the-counter markets. This name is derived from the fact that trades on these markets are made between two parties directly — without a central exchange. Examples include the OTCQX, OTCQB, and OTC Pink marketplaces. Buyers are often scarce in OTC markets and prices can swing wildly on just a few trades.

These volatile markets remain popular with speculators hoping to make quick profits on companies that others have left for dead (known in the industry as “penny stocks”). Penny stocks are shares in companies that trade for less than $5. They are often very illiquid, meaning they don’t trade often. As volume declines, fewer traders are willing to take a chance on companies trading for a few dollars and these stocks can often fall to zero due to lack of interest.

Examples of stocks that went to zero


A large energy company that peaked in the 1990s, Enron hid huge losses and toxic assets of no value behind creative accounting practices. Enron stock was trading as high as $90.75 in 2000. When the company began reporting massive losses, analysts and investors became suspicious of the accounting practices it used to value its assets and dumped the stock. Enron was trading at $0.26 just before it declared bankruptcy in December 2001.


This telecommunications company perpetrated the largest case of accounting fraud in U.S. history. WorldCom inflated its net income and cash flow by recording expenses as investments to conceal its losses. In 2001, it reported $1.3 billion in profits even though it was losing money. Its stock price fell from over $60 to less than $1 before the company declared bankruptcy in 2002.

How does a company become worthless?

When a company can no longer operate profitably, it may be forced to declare bankruptcy. At this point, the company is essentially worthless until it decides to restructure or fold altogether. Companies in this precarious situation have two choices:

  • Chapter 11 bankruptcy, also known as a reorganization.

    Companies choose this route when they work with creditors to renegotiate their debts in hopes of returning to profitability. Unfortunately, stockholders often see very little return in this scenario. In fact, much of the time, a bankrupt company will cancel its stock, making investor shares worthless.

  • Chapter 7 or liquidation.

    If a company finds itself in a situation that is too dire for restructuring, it is forced to sell off its assets in order to repay creditors such as banks, bondholders, and in some cases, even preferred stockholders. In most cases, holders of common stock get nothing.

Preventing a share price from going to zero

When a company’s share price starts to decline, they can take steps to avoid being relegated to the OTC market. If their stock does end up relegated to the OTC market, it’s likely the volume of their stock will dry up and they’ll suffer further losses. Some steps they might take to avoid this include:

  • Reverse splits.

    A company may initiate a reverse stock split to decrease their number of outstanding shares and increase the price per share. As a result, shareholders lose a certain number of shares, but the value of each share goes up, raising the stock price for the company. For example, in a 1:2 reverse stock split, a shareholder with 100 common shares would end up having 50, but each share's value would double.

  • Share buybacks.

    If company managers believe a stock is dramatically undervalued for no reason, they might repurchase some of the shares at the reduced price and then reissue them once the price has rebounded. Buybacks are increasingly popular in equity markets. Investors should be on the lookout for companies with buyback plans in place because it’s possible that demand can lift share prices.

  • Improve financial performance.

    If a company increases sales and revenue without increasing costs, it will increase its return on investment (ROI), making its stock more attractive to investors. Companies with slumping share prices will often bring in turnaround experts that they pay in the form of equity, providing these professionals with huge incentives to fix operations. Peloton, for example, brought in Barry McCarthy, the former chief financial officer at Spotify and Netflix, to stem losses and streamline operations in early 2022.

What this means for you

The possibility of your stock plummeting to zero shouldn’t scare you from investing, but it is a reminder of the inherent risks associated with the stock market. If you’re concerned over your ability to keep close tabs on your investments but still want to reduce risk, you can work with investment pros at Titan to actively manage your capital. Our team will help you make stock choices that are consistent with your risk tolerance and that aim to consistently outperform the market. Get started today.


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What Happens If a Stock Goes to Zero? | Titan (2024)


What Happens If a Stock Goes to Zero? | Titan? ›

When a stock's price falls to zero, a shareholder's holdings in this stock become worthless. Major stock exchanges actually delist shares once they fall below specific price values. The New York Stock exchange (NYSE), for instance, will remove stocks if the share price remains below one dollar for 30 consecutive days.

What happens when stock goes to 0? ›

If a stock falls to or close to zero, it means that the company is effectively bankrupt and has no value to shareholders. “A company typically goes to zero when it becomes bankrupt or is technically insolvent, such as Silicon Valley Bank,” says Darren Sissons, partner and portfolio manager at Campbell, Lee & Ross.

What if you short a stock and it goes to 0? ›

For instance, say you sell 100 shares of stock short at a price of $10 per share. Your proceeds from the sale will be $1,000. If the stock goes to zero, you'll get to keep the full $1,000. However, if the stock soars to $100 per share, you'll have to spend $10,000 to buy the 100 shares back.

What does 0.00 mean in stocks? ›

If you are seeing 0.00 on the Portfolio or Valuation, this is generally because the stock is not traded on one of the regular markets that we follow, has been de-listed, or has changed their ticker symbol.

What happens to a put option if stock goes to zero? ›

For a put option buyer, the maximum loss on the option position is limited to the premium paid for the put. The maximum gain on the option position would occur if the underlying stock price fell to zero.

Do you lose your money if a stock is delisted? ›

The Impact of Delisting on Investors

Once a stock is delisted, stockholders still own the stock. However, a delisted stock often experiences significant or total devaluation. Therefore, even though a stockholder may still technically own the stock, they will likely experience a significant reduction in ownership.

Can you write off a stock that goes to zero? ›

You can take a total capital loss on the stock if you own stock that has become worthless because the company went bankrupt and was liquidated.

Who loses money when you short a stock? ›

Put simply, a short sale involves the sale of a stock an investor does not own. When an investor engages in short selling, two things can happen. If the price of the stock drops, the short seller can buy the stock at the lower price and make a profit. If the price of the stock rises, the short seller will lose money.

What happens if the S&P 500 goes to zero? ›

Can an S&P 500 index fund investor lose all their money? Anything is possible, of course, but it's highly unlikely. For an S&P 500 investor to lose all of their money, every stock in the 500 company index would have to crash to zero.

Have hundreds of stocks fallen below $1? ›

Hundreds of stocks have broken the buck this year, following a slump in the once-hot market for buzzy startups seeking rapid growth. As of Friday, 557 stocks listed on U.S. exchanges were trading below $1 a share, up from fewer than a dozen in early 2021, according to Dow Jones Market Data.

How common is it for a stock to go to zero? ›

In fact, this is not uncommon, as most new companies operate at a loss for years before reaching maturity and profitability. A stock price of zero, however, means that the expectation of future earnings is irrevocably lost, as would be the case for a company that dissolves and ceases to do business.

What happens if a stock is delisted? ›

If an investor owns a stock, but that stock gets delisted, they still own the stock, but its value is likely to decline significantly. Mandatory delisting is usually viewed as a sign of financial distress and can sometimes signal a forthcoming bankruptcy, which tends to decimate a stock's value.

What happens if I sell a put option out-of-the-money? ›

Out-Of-The-Money (OTM)

The only difference is, if the stock trades above the strike price at expiration where the trade begins, there won't be real intrinsic value for the put owner. If this happens, the trader would lose all value paid for the option up front and realize max loss.

What is the most money you can lose on a put option? ›

As a Put Buyer, your maximum loss is the premium already paid for buying the put option. To reach breakeven point, the price of the option should decrease to cover the strike price minus the premium already paid.

Do you owe money if your stocks go negative? ›

Key Takeaways

Always remember, you generally won't owe money if a stock goes negative, unless you're trading on margin.

Can delisted stock come back? ›

A delisted stock can be relisted only if SEBI permits it. The market regulator lays out different guidelines for relisting such shares. Relisting of voluntarily delisted stocks: Such shares will have to wait five years from their delisting date to get relisted again.

What happens when a stock falls below $1 on the Nasdaq? ›

If a company trades for 30 consecutive business days below the $1.00 minimum closing bid price requirement, Nasdaq will send a deficiency notice to the company, advising that it has been afforded a "compliance period" of 180 calendar days to regain compliance with the applicable requirements.

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