Be careful (and understand BK process) if you plan to buy stock in GM

I just had a co-worker who had the "great" idea of buying GM stock.
1) it is pennies per share
2) after investing $50B the govt isn't going to let GM fail.

Not sure if anyone is planning on following that logic here but seeing as GM is still "worth" ~$0.70 obviously someone is.

http://www.sec.gov/investor/pubs/bankrupt.htm

Shareholders almost always are wiped out completely in BK.

GM needs capital without new capital it will never emerge from BK.
In this case the govt is supplying the new capital (cash) but in other BK investors put that up.

Seeing as the company would be dead without new capital usually the BK judge simply erases any existing shares.

So you can buy GM today for $0.70 per share and in 30 days it is gone.
GM survives but your shares don't.

I am not trying to provide investment advice but please understand how the process works before buying shares of a company likely to enter, about to enter, or already in BK protection.

If you don't understand this or the link then do yourself a favor and don't try to think you are Warren Buffet. :)

The institutions (major banks, pensions, insurance companies) have tons of GM stock. They know it is worth $0.00 and are happy to unload it on you for any price they can get. They are expecting to lose everything but if you are willing to take it off their hands they will do it.

Now it is possible when a company is partially capitalized (has some shareholder equity) that the BK judge will let existing shares survive or dilute them but GM has $80B ish in assets and $170B in liabilities. Shareholder value is well below 0. The possibility that the BK judge will let existing GM shares stand is less than winning the lottery.

... and then selling it at $4 on the rebound, but the reason I didn't do that was because I didn't understand what could happen to my investment (about $10K perhaps) if it had tanked from the $1 bottom a couple of weeks (months?) ago.

I'm also kicking myself for not buying Ford and Citi and quadrupling my money- but it's scared money. Seriously scared money and I simply can't afford to lose it.