In U.S. financial slang, a bagholder is a shareholder left holding shares of worthless stocks. It can also refer to the holder of any financial instruments that become worthless, such as the junior bonds of a defaulted company or the coins of a failed cryptocurrency. The word is derived by combining shareholder with the expression “left holding the bag.”
The shareholders could be caught up in a corporate bankruptcy and accounting scandal, as was the case with Enron and Worldcom, or the victims of a pump and dump scheme, in which naive and unsophisticated investors fall victim to e-mail spam, rigged stock tip forums, or other tricks used by stock touts to drive up the shares of worthless penny stocks.
If a worthless property is bought with the idea to sell it for a higher price, the gullible person who is stuck owning the property is the bagholder.
The expression “left holding the bag” originated in eighteenth century Britain and spread throughout the English-speaking world. In this context, a person left holding the bag is stuck with the stolen goods, taking the blame from the police while the rest of a criminal gang escapes.
The phrase is also used in association with the practical joke known as a snipe hunt, in which an unsuspecting newcomer is led outdoors and left “holding the bag” in which to catch a creature that does not exist. As an American rite of passage, it is often associated with summer camps and groups such as the Boy Scouts.
- ^Booth, Richard A. (1998). “Stockholders, Stakeholders, and Bagholders (or How Investor Diversification Affects Fiduciary Duty)”. The Business Lawyer. 53 (2): 429–478. JSTOR 40687791. SSRN 149731.
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- ^“Q&A Left Holding the Bag”. World Wide Words. 2002-11-30. Archived from the original on 3 January 2007. Retrieved 2006-12-03.
- ^Partridge, Eric (2006). A Dictionary of Slang and Unconventional English. Routledge. p. 560. ISBN 9781134963652.
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Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.