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Comment by Marrand | Hacker News Reader

I agree with you, but it might not be completely irrational to buy an about to be bankrupt company. If the assets on book is sufficiently larger than the stock price, investors might get a payout when it gets sold off after fees. When Enron was liquidated, the last investors that bought the stock ended with an 8x RoI (according to an Acquired episode). Still an insane gamble obviously.

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Short sellers can use bankruptcy as a way of closing out their positions and also in the process provide some market and liquidity. Short sellers borrowed stock and sold it based on the belief that the stock was going to drop in price and need to buy the stock to return it.

Institutional investors will attempt to liquidate but are largely locked in as significant sales will take the price to zero. It is the irrational retail investors who see the stock trading above zero and believe that “smart money” is accumulating shares.

If a company goes bankrupt, short sellers do not have to buy the stock to return it. The stock ceases to exist and the position is closed.

https://www.investopedia.com/ask/answers/maintain-short-posi...

Agreed about irrational retail investors keeping the price of Bed Bath and Beyond and Sears above $0.

Hilariously, the creditors/BBY management saw the price and sold stock into that crowd right before bankruptcy. The prospectus literally said something like "we plan to go into bankruptcy soon and this stock will be worthless, it's just providing slightly more value for our creditors" but meme stock traders bought it anyway.

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