Pink Sheets
The Pink Sheets are called such because the original stock quotes were printed on pink colored paper, way back in 1904. Back then, the pink papers contained lists of the names of small company securities as well as the name and contact number of market makers who dealt with the stock. To buy a stock, investors had to get quotes from different market makers and by the time they got the information, the prices on the lists were outdated.
Things changed in the late 1990s when a Wall Street trader named Cromwell Coulson, who specialized in trading pink sheets stocks and made a lot of money from it, bought the company and renamed it to Pink Sheets LLC. Towards the end of the century, the company introduced the electronic quotation service, allowing the individual investors to bid on pink sheets securities.
Stocks that are listed on the Pink Sheets do not have to fulfill any filing or reporting requirements at all, making it more difficult to find information on these companies, especially the small ones. This doesn’t mean that all the companies listed on this electronic quotation service are dubious ones. You’ll be surprised; there are small companies that are just startups, but there are also many big companies – some of them known names in their field – that prefer to stay there.
While the lack of comprehensive information may make it difficult to find good stocks on the Pink Sheets, there are many advantages to picking your stocks investment from here:
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It’s cheap – Have you ever heard of a stock that’s trading for as low as $0.0001? Yes, that’s right, we didn’t over add zeros here. It’s ridiculously cheap but true. For you, this means that you can easily buy more shares, and if you happen to buy into a good company then you’re on your way to earning a lot from your investment. |
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Many of the companies have huge growth potential – Most startup companies choose to trade on here because they are too small to comply with the reporting requirements of the SEC. Microsoft started here, and so did many of the companies that you see on the big boards right now. The startup companies, over time, will expand and grow, and then graduate to the major stock exchanges. If you own a stock that is in a staple or high demand industry and has a unique product and you hold on to that stock for the next decade, you’ll probably be a rich investor years from now. |
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Stocks can appreciate very quickly – Some stocks rise by as much as 6000% gain. Depending on the company’s market demand and its ability to meet that and future demand, its stock prices may zoom at a speed that will be dictated by how the market – and the investors – respond. It takes a very keen eye to be able to discover jewels from the thousands of companies from the Pink Sheets, but it is possible to make huge money if you know which ones to pick.
While there are advantages, there are also disadvantages. |
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Stocks can depreciate just as quickly as they can appreciate – Bad news has a way of affecting stock prices, and if an industry suffers a setback or crisis, it is inevitable the companies in that industry will be affected. |
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Some stocks can go without any activity for long periods – This is called being thinly traded, where stock prices stay flat for a long time. If there is not much activity within the company and in the industry, or if the industry itself is in a slump, then there won’t be much activity on the company’s stocks. |
The current financial crisis and looming recession are already a sign. The major stock exchanges are unstable, so it’s a good time to take out your microscope and do a Sherlock Holmes on the Pink Sheets. While many companies on the big and small boards have been affected, there are still many here that are trading successfully. Check out our Newsletter for information on which companies on the Pink Sheets are likely to weather the turbulent market successfully. |
