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We must be able to determine the difference between a good company and a good OTC BB company. When you buy a listed stock you are buying a company that is owned by so many more people than a bulletin board stock. In giant corporations things like executive pay, what insiders are buying or selling, and how much they waste on expense accounts don't matter very much. In our world these things are much more important, think of an over the counter stock as a Mom and Pop company. In many cases one or two people run the entire company and even do the accounting and SEC fillings. We must determine what company's legitimately make or sell a product or service, and not just push paper around to sell shares to the public. A good way to do this is to spend five minutes researching a company and if you can't figure out what they do, make or sell, then forget about it. I'm having trouble finding information about a company, any ideas? Sometimes it can seem impossible to find information for OTC BB stocks. Their rules are not as stringent as the NASDAQ's and late filings will not get them delisted. The amount of data required from these company's depends on the number of market maker's registered and how often they update prices. OTC BB stocks are dually quoted on the Pink Sheets and both have helpful websites for a little more enlightenment. First of all, read all of the company's most recent unabridged filling's with the SEC. The number of shares outstanding and insider info can be used to estimate float for example. So if the balance sheet, cash flow, and income statements are old, are we only to assume that things are looking grim? Not necessarily, check their web site or give them a call investor relations or not and ask whats going on. How do I know when to buy or sell because of news? Lets talk about when to sell a stock because of news. We know that buying a stock is the easy part and we never do it right after good news. Always buy when there has been no news for a while. The only time to sell a stock is either on good news or very bad news. We typically average down, but if horrible news comes out, its obviously better to sell everything for a loss and save a lot of money. Only look for news that changes the entire fundamental structure of the company. Be sure to read everything that comes out because even the worst news can sound good in a press release. One example would be if the headline reads "WXYZ corp announces restructuring and intent to purchase ABCD inc." At a glance this almost appears O.K., but further scrutiny will uncover that the company has ceased all operations and is currently looking for a couple of companies that are worse off than them to buy. A lot of times things will work out but the stock is definitely going down and not returning to the same levels for quite some time. You usually have 20-30 minutes to get out at a reasonable price and watch for the dead cat bounce the next day. It is definitely important to monitor news throughout the day for sells but not buys. How do I spot overall trends in the Micro Cap Markets? It is not important to follow the major market indices's, although it is nice to know where the S&P, NASDAQ, and of course any Blue Chip investments you may follow are. We have not found a helpful and unbiased index for micro caps, so we follow the Russell 2000 as a kind of higher risk measurement. Over the long term penny stocks will follow the same pattern as the overall market but on a day to day basis, they tend to lag a little behind. Watch for heavily traded OTC BB stocks to rise when broader markets are selling off. We call this the dumb money effect, traders take their profits to riskier issues in an attempt to push their luck. Also, be sure to check out our analysis charts representing the historical average price movements of all traded stocks in their respective markets. |
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