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Liquidation events
Rudiger Lippert
posted

Ben Graham's investment strategy was to buy stocks at prices below their liquidation value (net-nets). In the best case, the company survives and the price goes up to meet the earnings power value. In the worst case the company would be liquidated and he would still make a profit (unless the company burns through a lot of cash first).

I know net-nets were a dime a dozen in Graham's time and are pretty scarce these days, but, if I were to try out his strategy, I'm wondering how liquidation would be treated. What happens on quantopian when a company goes under and is liquidated? Is quantopian aware of how much the common stock holders would have gotten, does the value just disappear, or is the stock automatically sold before the company goes under?

2 responses
Jamie McCorriston

Hi Rudiger,

In backtesting and Quantopian paper trading, if you hold a security that becomes delisted, the position will be removed from your portfolio 3 trading days after the delisted date. Your portfolio will be reimbursed with the cash equivalent based on the last known price of the security (the last known price in our database) and the number of shares that you owned.

In live trading, delisted securities are handled by the broker.

Does this help?

Jamie

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

Rudiger Lippert

That does help, thanks.

Sadly, that means you can't really determine what the true returns would be for a strategy that might involve many liquidation events.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.