Below we'll take a look at four historic incidents that are cautionary tales for any investor who might be deluded enough to think that any stock is rock-solid and immune from collapse.
1) Coleco Industries
During the technology boom of the early 1980s, this maker of children's plastic swimming pools came out with bargain-priced computer video games and an inexpensive home computer dubbed "Adam." But it really hit the big time when it created the toy on every little girl's Christmas list in 1983: the Cabbage Patch Kid. Not since the Dutch Tulip Mania of the 17th century had crowds been so manic over a fad.
These hot products turned Coleco into a Wall Street darling. In August 1982, the company's stock languished at about $7 a share. But by June 1983, it was trading at a whopping $65. Then it fell off a cliff, plunging more than -50% from June to August 1983, as sales of its products dramatically slowed. By March 1984, Coleco stock sat at $10 a share, and in 1988, the company filed for bankruptcy.
Just as the high-tech boom of the early 1980s propelled Coleco, the dot-com boom of the late 1990s propelled Pets.com. During its heyday, the Amazon.com-backed company was the dominant online pet store, well known for its sock puppet spokesdog. But the company mismanaged its cash, investing in costly TV advertising -- notably, during the Super Bowl -- instead of investing its money back into the basics of its business.
In February 2000, Pets.com launched an $82.5 million IPO. Only one month later, the tech bubble officially burst. By November, the company had gone bankrupt and closed its doors. The stock fell from over $11 per share in February to $0.19 the day of its bankruptcy announcement.
No list of fallen giants would be complete without discussing Enron. The energy company was #7 on the Fortune 500 list of biggest companies and was once touted as an exemplar of American enterprise. It was one of those companies that truly seemed too big to fail; a huge entity that could never possibly run out of money. But it did -- and fast.
Enron's stock price hit a high of $90 per share in mid-2000. But a complex web of egregious accounting irregularities and financial abuses came to light, leading to federal investigations, regulatory reforms, and prison sentences for some of the company's top executives.
By the end of November 2001, the stock price had plummeted to less than $1 a share, causing shareholders to lose nearly $11 billion and wiping out the retirement plans and nest eggs of thousands of employees. The company went bankrupt in December 2001.
We're all familiar with the tragedy of Stearns, the investment house brought down by securitized sub-prime mortgages. As late as February 2008, Stearns' stock traded north of $93 per share, but down substantially from its 52-week high of $133.20.
The stock plummeted, finally hitting an astonishing low of $2, on a $236.2 million buy-out offer from JP Morgan Chase (NYSE: JPM). The bid was eventually raised to $10 per share in an effort to mollify investors and stave off potential legal action.
The collapse of this once-venerable Wall Street brand name precipitated the Great Financial Meltdown of 2008. The dizzying collapse ofStearns' stock set off a global economic domino effect that we're still coping with. In January 2010, new owner JPMorgan discontinued using the Stearns name, which had become synonymous with greed and reckless mismanagement.
[Investing Answers Feature: 99 Surprising Financial Facts Most Investors Don't Know.]
- Create a retirement savings goal
- Design an investment plan to reach it.
- Get a professional money manager to continually monitor and rebalance your portfolio
Sound complicated? Don't stress. Vanguard's new robo advisor service can help you put all of this (and more!) on autopilot, all for an annual gross advisory fee of just 0.20%.