How Low Can Stock Prices Go?

Every time the market takes a header off the edge and stock prices fall, pundits begin taking shots at calling the bottom.

A lot of bragging rights go with calling the bottom correctly. Pundits and advice sellers want to go on record with the correct call.

For the record, most of the impressive gains are registered in the first months of a market rebound and no one knows when the market has truly bottomed until after it happens.

Add to the professionals who want to call the bottom all the amateurs lamenting that surely we must be at the bottom. This pronouncement/question usually follows a bitter day in the markets.

How low can stocks go? The answer is simple: stocks can drop to nothing - $0 per share.

How Low Is the Bottom?

However, it happens even when markets are not in turmoil. Companies go bankrupt or just fade away leaving investors with nothing but a bad memory.

Most people don’t consider that when investing in stocks. They see the upside but really don’t understand that there is no literal floor under how much of their investment they could lose (you can’t lose any more than the stock you own).

Few active investors remember that during the crash of the late 1920s, the market lost 90 percent of its value.

An unfortunate consequence of all the taxpayer bailouts in 2008 was to reinforce the idea that even if things get really bad, the government will step in and make it right.

The government didn’t apply its help even handedly, letting some companies fail while rescuing others.

If the consequences of massive failures in the financial sector weren’t the equivalent of Armageddon, it would have been better to let risk takers fail when their bets go bad.

Following some brutal days, weeks and months in 2008 and some were saying the worse must be over and things will return to normal.

Wishing won’t make it happen. Keep a clear head, even when it feels better to hope for a miracle.

Down markets are fertile ground for rumors, wishes and ill-founded hopes that the good times are just around the corner.

While waiting out the market rebound, look for bargains if you can afford the risk and with the understanding that no matter how far a stock has dropped, it could drop mor