Shares of Bankrupt Firms?

Buying the shares of a bankrupt firms
Business failures have been running at high rates, and that's a shame. But many investors are finding bargains in bankrupt firms.

They buy up the stocks and bonds of big, bankrupt corporations at distress prices. These speculators hope that the companies will come out of their court-directed reorganizations slimmed down and comparatively dept-free, and that the increased value of their securities will amply reward investors for the steep risks they are taking. Investors' eye glisten at memories of the huge fortunes that were made on such bankrupt companies of the past. Of course, there are investors in bankrupt firms have lost considerable money.

So, bankruptcy investors tend to stick with secured dept. At times they will venture further down the pecking order to buy preferred or common stock. But usually they will do that only after a company has just come out of reorganization, shining with such virtues a clean balance sheet, an accumulation of tax losses that can be carried forward to offset future earnings and a talented management with definite ideas about where it's heading.

Investing in bankrupts is not for the faint of heart or short of pocket. Even situations that look promising often do not pan out. Since the bankruptcy investment game is dominated by the professionals, it would be foolhardy to sit in without coaching from the experts at a brokerage house.

Example:
David Howard Murdock
(born April 10, 1923)
Is an American businessman. Forbes estimates he is the 214th richest person in the world, with a net worth of 4.7 billion US Dollars. A high-school dropout, Murdock was drafted by the U.S. Army in 1943.
In 1985 he took over the nearly bankrupt Hawaiian firm Castle & Cooke, which owned pineapple producer Dole Food Company. He developed Castle & Cooke's real estate portfolio into residential and commercial properties and turned Dole into the world's largest producer of fruits and vegetables.
Dole has generated "negative free cash flow (defined as cash flow from operations less dividends and capital expenditures) annually since 2005, the company remained free cash flow negative during the first half of fiscal 2008"

(Fitch Ratings, July 30th 2008).
source: wikipedia