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The psychology of bankruptcy: Chapter 7 and 11!

November 8, 2009

As with anything else in human affairs, the first ‘victim’ is always the Law of Parsimony. For the lucky ones who follow my simple investing rules, here is your opportunity to know only what you need to know about Chapter 7 and 11: No one would buy a company (your shares) on the verge of bankruptcy that had not paid its bills because management, workers, products or unions had tried and failed, time and again, to change its negative business practices (NBP). Dissolution (Chapter 7) is the only solution. You lose your money, or retrieve a penny on the dollar in court, because common share holders are the last paid after the company assets are sold.

About Chapter 11, someone would loan, join, or  buy parts of a company (your shares) on the verge of bankruptcy that had paid some of its bills because management, workers, products or unions had changed some of their negative business practices under pressure. But, you lose your money anyway, and it hurts because the company is reorganized under the same name, while your shares are now worth only pennies.

How can you avoid ‘dud’ companies?  Never buy shares in companies like Nortel, GM where CEOs blame their losses on market conditions or other people. Stay only with leaders who take 100% responsibility for your losses and show that they are eager to change their NBP by taking innovative workshops like mine! I would assume that about 10%  of effective management seminars (EMS) are innovative enough to qualify, and none of them is ‘politically correct.’

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