Five of The Worst Ever Share Price Plummets

For all the time and effort that goes into trying to predict whether the value of a company will rise or fall there are a huge number of completely unforeseeable reasons as to why the share price of an enterprise might plummet. Anything from terrorist attacks, natural disasters or good old fashioned incompetency can knock the confidence of investors sideways and send share prices plummeting. Here is a run down of a few of the worst share price free-falls:

Enron

It's hard to perform a feat which will cause your name to be forever associated with your actions, but if you do, you know at least you'll be remembered. For, example, we're all familiar with the name Judas, despite the fact that, in the A.D. era, it has rarely found its way onto a birth certificate. Likewise, Enron is a name that, even those who know little or nothing about the ex-energy giant, have heard and associate with greed and incompetence.

Why? Well in 2001 the company filed what, at the time, was the biggest bankruptcy in American History, taking a whole ton of investors money with it. The problem was the company's "complex and opaque business structure" and a "failure to communicate with share holders" i.e. They formed partnerships with their own shell companies, indulged in massive inside trading and lied time and again to all concerned.

Enron was voted Americas Most Innovative Company from 1996 to 2001. Presumably they won the award for their highly creative approach to accounting, which hid debts and losses away in the books of obscure "off-shore" companies.

Once exposed, the whole rotten structure collapsed and the company went from being worth $70m to absolutely nothing as stunned shareholders sought to sell at any price in the face of the revelations.

The smartest investment that could've been made with regards to Enron would've been in any office supply firm specializing in shredders. Enron used thousands of them to try and destroy the paper trail pointing to their convoluted deception.

Marconi

British company, Marconi were a giant in the world of telecommunications, entering the market towards at the height of the dot.com boom. The words "dot.com boom" are today synonymous with spectacular flops and, unfortunately, despite not being an online business, Marconi's tale is no exception.

When world wide demand for telecoms equipment dried up the company was sent into turmoil. Their shares, once worth £12.40 each, quickly became worthless, leading to £400m being wiped off of the company's value in a single day in September 2001, the end of a troubled period that saw the company lose 95% of its value in under a year.

Was this bad luck or incompetence? It's hard to say. As ex-CEO, Lord Simpson has pointed out, not many saw the telecoms slump coming. That said, their £4bn acquisitions of a couple of a American companies seemed over priced. Lord Simpson defended himself thus; "What else were we going to do? Telecoms was the obvious market to expand into..." The lesson? The "obvious markets" have a tendency to blow up in your face.

BP

Natural disasters are, by their nature, unpredictable. Often, they can have a huge impact on the value of a company who could've had no way of knowing that some sort of unforeseeable meteorological event was about to lay waste to their own forecasts.

This would've generated enough bad press in of itself, but was further compounded by the fact that ex-chief executive Tony Hayward walked away with a £1m payoff and a £600,000 annual pension, whilst the company recorded a massive £11bn loss for the quarter, shareholders were denied their dividends and hundreds of people lost their jobs in the Gulf of Mexico as the effects of the leak ruined many local businesses.

Bre-X Minerals

Many companies have managed to lie about their debts. Bre-X managed to lie about their assets. "What's so special about that?" you may think. "Surely many companies find various ways to overvalue themselves?" Yes, this is true, but the value of an asset such as a subsidiary company, for example, can be hard to quantify. The value of precious metals is not. Back in the days of the gold standard this was the basis of the whole economy.

So, when in 1995 Bre-X, then valued at under $1 a share, falsely announced it had found huge deposits of gold in Indonesia, its share price sky rocketed to over $300 CAD a share and it achieved a huge feat of deception.

Later, investigations showed that Bre-X had simply been sprinkling gold dust into the samples taken from the sight and the company was quickly de-listed from the FTSE and NASDAQ. It turns out not all that glitters is gold.

Washington Mutual Inc

Washington Mutual Inc was the holding company for America's largest savings and loans association. The key word being "was".

Having made losses of $6bn over just three quarters (mostly through selling risky mortgages) customers started to panic and, in the time honored fashion, rushed to get their cash out before the house of cards came down. Following a ten day run on the bank occurring in September 2008, over $16bn was withdrawn from its accounts. The FDIC quickly seized its assets and the bank's holding company filed for voluntary bankruptcy. A quick, efficient and totally comprehensive collapse.

America's largest ever bank failure was made all the more controversial by the sale of the bank's assets to rival JPMorgan Chase at, what many believe to have been, a ridiculously low sale price, an action which has lead WaMu Inc to seek $13bn in compensation from the FDIC.

In the year leading up its collapse the company's share price fell from $30 to $2 a share, the type of price cutting you might expect form an institution once nicknamed "The Wal-Mart of Banking."

Gordon Farrelly has been an investor in the stock market for most of his professional life and has seen the ups and downs that come with it. Recently he has been writing about the stock market at his site: Trading Talk, and hopes that the information provided can prove useful.