In U.S. financial slang, a bagholder is a shareholder left holding shares of worthless stocks.
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.
The term has also been applied as a term of derision to real estate investors.
The word is derived by combining shareholder with the expression "left holding the bag."
Holding the bag
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.
Also, the term can be applied to shareholders in publicly traded companies that are caught holding the bag.
Victims of the practical joke of snipe hunting without weapons are often sent into the woods with only a bag to catch the birds. While friends run off (and out of sight) to seemingly chase the birds in the bag-holder's direction, the victim is "left holding the bag" as the jokesters run back to their cars or trucks. The victim is then stranded alone in the woods, forced to walk back on his own.
- 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.
- "Still More Housing Bull," by Seth Jayson, The Motley Fool, Aug. 8, 2007
- "Q&A Left Holding the Bag". World Wide Words. 2002-11-30. Archived from the original on 3 January 2007. Retrieved 2006-12-03.