Recently, a friend asked me what to do if the stocks they hold get delisted. This is actually a very good question, because many people have never even considered this kind of situation. I only came to realize later that buying stocks isn’t just about tracking price increases and decreases—it’s also about guarding against extreme risks like this.

First, let’s talk about what it means for a stock to be delisted. Simply put, it refers to a company’s stock that was originally listed and traded on an exchange being terminated from its listing eligibility because it no longer meets the listing requirements or because the company applies to delist. Once a stock is delisted, you can’t continue buying or selling it on the exchange, and in most cases, its value will drop sharply. This is different from a trading halt. Trading halts are usually short-term, while delisting is a real, permanent exit from the market.

So why do stocks get delisted? I’ve seen a few common scenarios. Some companies post losses year after year, and their financial reports are rejected by auditors. For example, natural gas company Chesapeake Energy filed for bankruptcy in 2020. Others commit fraud—for instance, Luckin Coffee was delisted from NASDAQ in 2020 due to financial fraud. There are also cases where companies voluntarily go private, like Dell Technologies, which exited the public market.

The entire delisting process doesn’t happen overnight—it usually takes several months. First, the exchange issues a warning, and the stock name will have a special marker added. Then, the company gets a 3 to 6-month remedial period to improve its finances or bring in investors. If the company still can’t meet the requirements, the exchange will convene a review meeting to decide whether to delist. As long as you keep an eye on broker notifications and exchange announcements, you can generally respond in time.

Now, the most critical question: Are delisted stocks still useful? This depends on the reason for the delisting. If the company voluntarily goes private and your stake isn’t too small, major shareholders will very likely buy back those shares at a higher price later. In that case, your stock could even appreciate. But if the company goes bankrupt, it’s a different story—ordinary shareholders are usually last in line during bankruptcy liquidation, and often end up receiving nothing.

Another situation is when the company’s market value is too low or the stock price is too low. In that case, liquidity is especially poor, and it’s hard to find someone to take the position. If you’re lucky, you may find a buyer off the exchange; if you’re unlucky, you might have to accept the loss. If the delisting is ordered due to regulatory violations, your holdings may be frozen, and you’ll have to wait until the company completes the legal procedures to resolve it. During that time, it’s effectively like you’ve lost the right to use that money.

So what should you do if a stock gets delisted? I think the most important thing is to closely monitor the company’s announcements. Before the official delisting, the company will publish the delisting date and the follow-up handling arrangements—for example, whether it will offer a share buyback, or whether the stock will be transferred to the over-the-counter market for trading. If there’s a buyback plan, you can choose to accept it or continue holding, but be sure to watch the deadlines—if you miss them, you may lose your rights.

Some companies will move to the over-the-counter market. Although trading volume is lower, at least you can still trade. And if the company later improves its financial condition, there may be a chance of relisting in the future. If there is no buyback or over-the-counter option, you can also choose to transfer your shares privately to other shareholders, or continue holding while waiting for the company’s next developments.

My advice is that instead of passively waiting, you should actively assess the situation. If you determine that the probability of losses is high, and someone is willing to take the position, sell as soon as possible—if you can cut your losses, do it. If your assessment suggests that the company might turn around, then you can continue holding while waiting for news of a buyback at a higher price. Of course, the best approach is to prevent problems in advance. When buying stocks, take the time to seriously analyze the company’s business prospects and financial condition to see whether it meets the exchange’s listing requirements.

Also, make sure to diversify your investment portfolio. Don’t concentrate too much money in a single stock. Adjust the proportion of high-risk and low-risk assets based on your own risk tolerance. That way, even if one stock truly gets delisted, your overall loss can be kept within a range you can tolerate. Finally, if the stock truly can’t be traded due to delisting, remember that when filing your taxes, you can report it as an investment loss to offset capital gains—at least this can provide some tax compensation.