3 Things Bankruptcy Can Teach You About Investing

Bankruptcy spells the end for many companies. But the experience nevertheless has lessons that smart investors can learn from and apply throughout their investing careers.

In the following video, Dan Caplinger, the Fool's director of investment planning, looks at three lessons that you can take from companies that have filed for bankruptcy. First, Dan notes that companies aren't the same as their stocks, going through the example of how General Motors emerged from bankruptcy but left past shareholders owning worthless stock in the pre-bankruptcy company. Second, Dan points out that some companies repeatedly file for bankruptcy, suggesting that the industries in which they operate are constantly difficult. US Airways is an example Dan looks at, noting that the airline has filed twice and is now involved in trying to help fellow bankrupt airline American through a merger. Finally, Dan observes that some stocks actually produce huge profits for investors after bankruptcy. Both General Growth Properties and USG used bankruptcy as a way to resolve isolated debt issues while giving them chances for their valuable assets to remain productive and rise in value, paying off big for shareholders who stayed the course. Those cases are the exception rather than the rule, but adept investors can sometimes find big opportunities from bankrupt companies.

Be smart about your investing
Fears of bankruptcies are just one reason millions of Americans decided to stay out of stocks following the financial crisis. But when they did, they put their entire financial future in jeopardy, missing out on huge gains in the market. To learn more about why investing is so important and what you need to do to get started, read our brand-new special report, "Your Essential Guide to Start Investing Today." Inside, Dan walks you through the basics to help you move forward with your financial life. Click here to get your copy today -- it's absolutely free.

The article 3 Things Bankruptcy Can Teach You About Investing originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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