Is negative equity bad in stocks?
Is negative equity bad in stocks? Most of the time yes! But not always. In fact, having negative equity, can be a sign of an excellent company. It took me a while to understand this, because is not obvious. Negative equity, most of the time, means that your liabilities are so high that (in theory) shareholders owe money to their lenders. A clear example of this happens when the real estate market crashes and the owner of the house owes the bank more than what the house is worth. When this happens most people just walk away from their houses and let the bank have the house; this is what happened to many people in the crash of 2008. Of course, in stocks you have limited liability as a shareholder, so nobody is going to come and knock on your door to collect their debt. It would mean you lost your investment... Or does it? Except that some great companies also show negative equity; for example, it just happened to Home Depot HD. The stock price keeps going up b