OTC Pink Sheets

[ForeignExchange]

Has anyone on the board successfully invested in the (OTC) Over The Counter Pink Sheets market?

[brewer12345]

If a company is at attractive investment, I don't really care what exchange it trades on. Many/most of the pink sheets issues are crap, to be blunt. They have no business or a failing one and they are prone to having their share prices manipulated.

Having said that, I own shares in one OTC issue that does not even file with t he SEC. It is a small bank, so I can get what I need from bank regulatory financial statement filings, and the penalty for falsifying those is a lot worse than what happens to people who money with SEC filings.

[semtex]

Most my holdings are OB stocks. Not sure I am in the "successfully" category.

[kcowan]

The biggest problem is trying to do DD. Usually the company records are not available and no analysts are following them. But if ouu know the company and its management, then OTC offers you liquidity. Many companies list there because the requirements are so much less, e.g. stock prices under a $1 but there are more pump and dump schemes operating there so buyer beware.

[Trek]

I've made a little playing OTC but overall am down. I only play a little bit with small sums of money not tied to my budget goofing around with penny stocks. I currently have some money sitting long term in a Russian Oil company traded OTC.

[ladelfina]

Yep.. you get very little in terms of analysis, research or even just basic figures. The figures may be from the year before last. I have TMX/AMX and WMMVY; I didn't buy them but they were very good speculations (broker's picks) passed on to me by my parents (UGMA). OTCs are not always small and/or risky companies, but if I had to choose some today I wouldn't know where to begin.

I see there is a new "premimum tier" announced on Pink Sheets -- Electronic Quotation and Trading System for OTC Securities
OTCQX... which supposedly adheres to more forthcoming reporting req.s. WMMVY is one of the ten "founding members" along with Tate & Lyle, the Splenda people who had a notable run-up for a while IIRC.

[FinallyRetired]

Take it from experience... run as fast as possible away from these companies. You would do much better in Vegas. Don't even think you will just invest a small amount for fun, because you might make money and get sucked in. It's an insider's game.

[Nords]

Quote:

Originally Posted by SoonToRetire Take it from experience... run as fast as possible away from these companies. You would do much better in Vegas. Don't even think you will just invest a small amount for fun, because you might make money and get sucked in. It's an insider's game.

I think you're throwing the baby out with the bathwater. A good stock is a good stock, even if it's thinly traded on a crappy exchange.

Spouse has been very happy with her Tate & Lyle pick. She doesn't suggest them very often but when she does, they're winners.

[ats5g]

There certainly are some good companies on the OTCBB and Pinks - ADRs and common stocks of foreign companies, local banks, etc. However, at any time the market makers can stop quoting the stocks, and then liquidity dries up. Stocks are not listed on the OTCBB and Pinks, like NASDAQ and NYSE, they are simply quoted.

[FinallyRetired]

Quote:

Originally Posted by Nords I think you're throwing the baby out with the bathwater. A good stock is a good stock, even if it's thinly traded on a crappy exchange. Spouse has been very happy with her Tate & Lyle pick. She doesn't suggest them very often but when she does, they're winners.

If it was a good stock it wouldn't be on a crappy exchange. These companies usually don't or can't file because their financials are a disaster. They are usually lying through their teeth in press releases, and working the MMs to get the stock price up enough so the insiders can sell. The real problem is it's difficult if not impossible to do DD. Press reports are just sales pitches, MM spreads are all over the place as they play their games, and it's just a gamble.

Never said you can't make money on some of these, just that it's a gamble and as with all gambles eventually you lose. I'm speaking from experience, made a bundle on BBs in the 90s then lost it when the crooks pulled the strings on what I thought were good investments.

But I'm bitter, your mileage may vary. Good luck.

[Nords]

Quote:

Originally Posted by SoonToRetire If it was a good stock it wouldn't be on a crappy exchange. These companies usually don't or can't file because their financials are a disaster. They are usually lying through their teeth in press releases, and working the MMs to get the stock price up enough so the insiders can sell. The real problem is it's difficult if not impossible to do DD. Press reports are just sales pitches, MM spreads are all over the place as they play their games, and it's just a gamble. But I'm bitter, your mileage may vary. Good luck.

Oookay, that hasn't been my experience and Tate & Lyle isn't exactly what I'd call a "financial disaster", but I guess that's what they mean by doing your own due diligence...

Bought our shares in Dec 04 and July 05 at $36.50 & $32.10/share and it's paid back a total of 7% in dividends since then.

[FinallyRetired]

Quote:

Originally Posted by Nords Oookay, that hasn't been my experience and Tate & Lyle isn't exactly what I'd call a "financial disaster", but I guess that's what they mean by doing your own due diligence... Bought our shares in Dec 04 and July 05 at $36.50 & $32.10/share and it's paid back a total of 7% in dividends since then.

Just looked it up, Tate & Lyle doesn't appear to be the typical BB or PK stock, and I agree there are a few that don't fit the mold. It may be that rare 1%. But it's still hard to do DD, and be careful when you sell, if it's not liquid the MMs can rip you off.

Believe me, for every Tate & Lyle there are a thousand or more crooked companies. The SEC tried to get rid of all BB stocks about ten years ago but all they managed was to have them file quarterly reports. That cleaned up the act a little bit, but those companies who couldn't file went PK.

As I said, good luck, I just don't think it's a good idea for the average investor to go into these stocks when there are so many out there with full reporting info, full financials, and wide coverage. But I will say this, when one is lucky with BBs they can return a bundle. I turned 35k into 240k before it all came crashing down. And even on the way up I thought they were crap, I just got lucky for a while.

[kcowan]

I have made some good money on OTC. Even held a CEO position in one. I think of it as swimming with the sharks. Just stay afloat and don't splash too much!

Seriously there are some good companies there but they are the exception. It is one of the few places that offers liquidity for companies that cannot qualify for more senior exchanges. Never have more than 5% of your portfolio on OTC/PNK!

[ForeignExchange]

All of the value investors I know of who trained under Ben Graham invested in the OTC market at one time or another and that includes Warren Buffett. Another was Irving Kahn, who's now over 100 and still investing. Here's one of the blurbs from Kahn Bros. website:

Investment Overview"COMPANY SIZE - We concentrate on small and medium capitalization stocks. These are often traded on the over-the-counter market. These companies have a lesser following among institutional investors. Small institutional ownership increases the likelihood of inefficient pricing and reduces the risk of unpredictable volatility."

[FinallyRetired]

Quote:

Originally Posted by kcowan I have made some good money on OTC. Even held a CEO position in one. I think of it as swimming with the sharks. Just stay afloat and don't splash too much! Seriously there are some good companies there but they are the exception. It is one of the few places that offers liquidity for companies that cannot qualify for more senior exchanges. Never have more than 5% of your portfolio on OTC/PNK!

If you were a CEO of one, I think you know the things I'm referring to. I don't have any problem investing in a company in any exchange if I can do proper DD. If I can get certified financials, revenues, earnings, shares outstanding, p/e, etc. The problem with BBs and PKs is that you can't usually get these and when you can they may not be certified by independent auditors so you don't know if the numbers are real or made up. Now, I realize there have been some reforms in the BB market and I'm really referring to the situation as it existed when I still "invested" in such companies in the mid to late 90s. From what I recall the SEC forced them to file or pushed them to the Pink Sheets. Some filed, some did not.

I remember one BB company I "invested" in. They said they had 20M shares outstanding and one day the price came crashing down. Turned out they were printing shares like crazy and stockpiling them until the price got to a certain level then the insiders unloaded. Even they didn't know how many shares they printed. The SEC busted them and they went bankrupt but they didn't care, they had made their money. These are just plain crooks under the guise of reputable businesses, and it's too bad they smear the few companies that really are trying to honestly make it, as I'm sure you were.

The bottom line, if a company is on a crappy exchange it's because of some problem, undercapitalization, funny books, or just an inability to get the backing needed for a major exchange. As an investor, one should ask, is this the best place to put my money, or should I invest it in a company that doesn't have those issues?

Can you make money on crappy companies or in the rare good companies on crappy exchanges? Sure, more than with good companies. Can you lose money on crappy companies or on crappy exchanges? Faster than lightning and you can never get out before the insiders.

I agree with no more than 5% of your money in such companies.

[FinanceDude]

I do some OTCBB stocks, but only in my most aggressive portfolio, or in my own account. I probably only have 3-5% of all my clients who have some money in them.......

[ladelfina]

Looking at the Pink Sheets site, it's not that hard to pick out large companies with global brands like Adidas (Germany) or Samsung (Korea). These companies likely have reasonable auditing of some kind.. and they'll have web sites with annual reports and it's probably possible to find articles and news, now with the Internet, that the average person couldn't have dredged up on their own ten or fifteen years ago. Just sayin'...

[kcowan]

Another thing to watch for is the state of registration. Nevada does not even require shareholder meetings or annual reports. Maryland is also slack compared with other states on reporting (but better than Nevada).

[FinallyRetired]

Quote:

Originally Posted by kcowan Another thing to watch for is the state of registration. Nevada does not even require shareholder meetings or annual reports. Maryland is also slack compared with other states on reporting (but better than Nevada).

Yes, I will say there is a huge difference between a BB penny stock registed in Nevada and a multinational large cap who happens to be trading on the Pink Sheets because they don't have an ADR. In my previous comments I was primarily talking about the former. I no longer invest in individual stocks but I still say, all else being equal, go to the company where you have all the safeguards of certified filings and SEC protection for what it's worth. As we kmow from Enron and others even that is not enough. At my age and retirement status I just can't take the risks I did when I was younger and more foolish. Though I did have more fun back then

[ERD50]

Look at it this way - people sometimes complain about the lack of transparency in big name, big board stocks. The pink sheets pretty much remove any transparency there might have been. You are flying blind in many cases.

There are exceptions, as have been pointed out. But in general, it just seems that at least one more card in the deck is stacked against you. Not a game I care to play.

I've read a few horror stories on other stock forums - in one case shares were actually falsified(!!??) and people were fighting about whether they actually bought real shares in a company or not. I don't even know know it turned out (I'm guessing the company went under anyhow, making it a moot point), but who wants to hassle with that stuff?

-ERD50