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Waiting for white knights - exercises in futility?

Tuesday, January 6, 2015 - 11:01

A remisier friend of mine recently pointed out to me that there is very little value in suspending failed or failing stocks for years in the hope that one day a white knight might emerge to rescue everyone. Instead, financially troubled stocks should still be allowed to trade separately, but  with full disclosure that maybe one day they may be completely worthless. This allows shareholders to exit, even if it is at rock-bottom prices, which is infintely better than waiting for years for something to happen.

As many would know, nothing usually does - there are very few white knights out there and this is all the more so if the stocks concerned have been suspended because of governance issues or are headquartered in some far-flung locale like the British Virgin Islands.

I actually wrote about this some time back, the idea being that with full disclosure of risks, moribund company shares should be transferred to a third board where anything goes. Once everyone is fully cognisant of the risks, then trading can commence; as close market watchers would know, sometimes even the smallest of pennies can post eye-catching returns.

As another remisier friend of mine told me : "you cannot regulate risk''. As long as participants know what they are in for, then why not? After all, some price is better than no price, isn't it?