In the world of investments, treading into the unknown can be a very hazardous journey. While the majority of investors opt for companies traded on the large stock exchanges such as the New York Stock Exchange, NASDAQ and AMEX, there are thousands, if not millions of people who choose to roll the dice with companies traded on the OTC Bulletin Board, or even more risky, the Pink Sheets.
The Pink Sheets does not require companies whose securities are quoted upon its systems to meet any listing requirements. With the exception of a few foreign issuers, the companies quoted in the Pink Sheets tend to be closely held, extremely small and/or thinly traded. Most do not meet the minimum listing requirements for trading on a national securities exchange. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies. For all of these reasons, companies quoted in the Pink Sheets can be among the most risky investments. That's why you should take extra care to thoroughly investigate any company quoted exclusively in the Pink Sheets.
Most Pink Sheet stocks are literal money pits. Company CEO’s have routinely cheated investors and have lined their own pockets through avenues such as “toxic” financing arrangements, issuing S-8’s and good old fashion selling while hyping the stock through brokers and wire services.
Often, a company once trading on a big exchange finds itself demoted to the Pink Sheets as it either tries to restructure itself, or is just stuck there as a last rite of passage to the stock graveyard. Adelphia Communications (ADELQ) fits within this category. Once a darling among investors, due to a major CEO scandal that rocked the investment community, it is now bankrupt, and trading on the Pink Sheets with very little hope of ever getting back to the big boards as it goes through the liquidation process.
Often times however, a company will use the Pink Sheets as a stepping stone to the bigger exchanges. Many reasons are possible, but the biggest one is usually the cost factor. Without required filings, CEO’s can save time and money when first starting out, and consequently, pump those savings back into the business to help grow it. When sales and revenues start to generate, CEO’s can then seek applications to the larger exchanges.
But not all is gloomy in the Pink world. If one researches diligently, finding a needle in a haystack is possible. A Pink Sheet listed company that I am keeping my eye on is Strat Petroleum Ltd., (SPRL) an Oil and Gas company whose strategy is to enhance shareholder value through the acquisition of oil & gas properties with proven reserves or producing/capped wells.
They began trading on the Pink Sheets in July of 2004 and since then, investors have seen the stock rise from under a penny to a recent high of about thirty cents. But what makes this U.S. company so unique is that they are focusing their efforts of becoming a top oil company by investing in, of all places, Russia. On the outside, one could look at that as carrying extra risk. But on a recent trip to the former Soviet Union, the company was able to secure their first oil field purchase, out of several they have identified and are pursuing. Strat Petroleum Ltd may be an exception to the Pink Sheet rule, or at least appears to be. Again, without listing requirements it’s difficult to know for sure. But I think that Strat Petroleum Ltd has excellent potential. Their Board of Advisor’s is a virtual Who’s Who of industry leaders, many of whom are Russian, which makes it even more attractive. See more about Strat Petroleum Ltd at www.stratpetroleum.com.
If you choose to invest in a Pink Sheet stock, or any stock for that matter, please do so with caution, and only after you have done the appropriate research. For tips on investing, please visit www.sec.gov .
Consult a professional investment advisor before making any investment decision.
The securities mentioned in this paper are not appropriate for all investors. While all reasonable effort is made to ensure the accuracy of information and data contained herein, accuracy cannot be guaranteed. Past performance is not a good predictor of future performance. Results are not guaranteed and we assume no liability whatsoever for any material losses that may occur. No compensation for suggesting particular securities or financial advisors is solicited or accepted. The information on this document, and in its related documents, is not intended to be, nor does it constitute, financial advice or recommendations.