Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I am new to stock investing and want to know how to access specific lists of pink sheet stocks. I want to do research on different companies and start with some low priced stocks to get a feel how this will work for me until I am comfortable buying pricier stocks.
Print the post Back To Top
No. of Recommendations: 4
That isn't investing. That's a recipe for losing money.

OTC stocks, otherwise known as penny stocks and pink sheet stocks, are highly risky investments whose companies are often businesses in name only. A Penny Stock is one that trades at a relatively low price (just a few pennies) and non-existent market capitalization, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They will often trade over the counter through the OTCBB and pink sheets.

In other words, there's no substance or "there" there.

Penny stocks are like a house of cards: the foundation is soft, the framework is fragile and the structure can fall at any moment. Although tempting because they are so inexpensive, penny stocks are highly risky investments that tend to fall apart quickly.

If you still want to buy a penny stock over the counter, here's how you can go about it:

The process of purchasing over-the-counter (OTC) stocks is different than purchasing stock from companies on the NYSE and the NASDAQ. The major difference is that OTC securities are unlisted, so there is no central exchange for the market. All orders of OTC securities must be made through market makers who, instead of just matching orders, actually carry an inventory of securities to facilitate trading.

Some penny stocks are the tools of pump and dump scam artists. The criminals acquire the name of an empty company which is nothing more than a shell, issue valueless shares, then fabricate a lot of hype about the up and coming promise of the company and try to drum up excitement on financial and investing websites and discussion forums in order to drive up the price by a few pennies. Then, after naive investors have poured thousands into the company based on empty promises, the crooks dump out of their remaining shares and pocket the profits, leaving investors holding an empty bag.

It's a cynical variation on the Benjamin Franklin saying, a penny saved is a penny earned. In this case, a penny scammed adds up to huge returns on the backs of unsuspecting investors.

All companies start somewhere but you shouldn't assume any of them will become the next Walmart. Bottom line, if a company doesn't have growing revenues, consistent profits, a recognizable management team, and a product or service that has both demand and a competitive advantage, you would probably be better off blowing your cash in Vegas.

Who can think of no good reasons why anyone who doesn't want to lose their shirt should be interested in penny stocks...

Ticker Guide: The Walt Disney Company (DIS), Intuit (INTU), Live Nation (LYV), CME Group (CME), MongoDB (MDB), Trip Advisor (TRIP), Vivendi SA (VIVHY), Mimecast (MIME), DHX Media (DHXM), Royce Micro Capital Trust (RMT)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disclosure: May own shares of some, many or all of the companies mentioned in this post (
Fool Code of Conduct:
Call to Action: If you like this or any other post, Rec it. Better yet, reply to it. Even better, start your own thread. This is YOUR TMF Community!
Print the post Back To Top
No. of Recommendations: 1
I agree with Fuskie. You will be far better off to invest your first funds in stocks with a history of earnings and reasonable price earnings ratios.

Penny stocks are often speculative ventures with no earnings, mostly promises. Some eventually do ok, but they are very risky and subject to rumors and false leads.

An industry leader with growing earnings is a better choice.
Print the post Back To Top
No. of Recommendations: 3
Hey Newbie,


I want to do research on different companies and start with some low priced stocks to get a feel how this will work for me until I am comfortable buying pricier stocks.

This is the #1 pitfall for most new investors. A stock is not cheap because of its price. A $1 stock could actually be more expensive in many ways that a $100,000 stock. Sounds weird but it's true.

Imagine company A:

It sells for $1. There are 10,000,000 shares out. It makes $50,000 in a good year, but it's been a bad year. They lost $15,000. They have $250,000 in cash and $5,000,000 in debt.

Imagine company B:

It has only 100 shares priced at $100,000.
That $100,000 is certainly expensive. But what it that company had $5,000,000 in cash, and earned $400,000 annually?

If you could buy the whole company, which would you buy, A or B?

You could buy all of A or all of B for $10,000,000. They are effectively the same price.

That's the measure of "cheap". If you focus on share price, you lose the big picture.

The same is true for the pieces of A and B that you might be buying.

One $100,000 share of company B is backed up by $4,000 of earnings and $50,000 in cash. That's $0.04 of earnings per dollar spent plus $0.50 of cash in its accounts for every dollar you spent.

How about company A? Each $1 share is backstopped by $0.005 in annual earnings in a good year (but a LOSS this year) and $0.025 in cash. And it comes with $0.50 worth of debt to boot! There's nothing cheap about it!

The biggest mistake many people make is confusing share price with value. They have nothing to do with each other. It's simply not true that a cheap share price means a cheap stock. It's most often the case that a $1 stock is worth virtually nothing (especially in a strong market; it's $1 for a reason). They are companies that are almost always in severe financial distress. That makes them unsuitable as investments. They're solely trading assets, or control assets in preparation for bankruptcy/reorganization. (Plenty of people make money trading stocks. But that's not really about value. It's about momentum. It's a whole different ball game. Some traders ignore fundamentals altogether.)

If you want to learn to pick individual stocks, ignore price and investigate some of the respected names. Read up a little on their financials. Read press releases and articles. Listen to a conference call. Learn why you think they would be a good company to run or own. Those good companies are the companies to focus on. Don't dumpster dive. It takes a lot of experience to dumpster dive and even then you'll get it wrong. Cheap does not equal a good investment. One share of Apple might look expensive, but it's worth a whole lot more than $200 worth of a $1 stock. You may get lucky in the pennies and make money. But it's because you got lucky on a $1 scratch off lottery ticket.

It's all so tempting to a lot of newbies. You can see some amazing pops in penny stocks, but there's a reason. People are intentionally trying to manipulate them. Resist the urge. The occasional huge pops are often followed by huge crashes. These are shark infested waters that are rarely if ever backed by fundamental value.
Print the post Back To Top
No. of Recommendations: 1
"I want to do research on different companies and start with some low priced stocks to get a feel how this will work for me until I am comfortable buying pricier stocks"


just a side note - figuring out how the market and stocks work does not necessarily
need to use "penny" stocks. There are several companies that have "direct purchase"
plans where you can buy stock directly from the company. While they typically have a
minimum purchase amount, this is not too high a hurtle for some companies.
Many of the plans are extensions of dividend investment plans.
My wife and I started investing in this way - taking $1000 to invest in 5 or 6 stocks
and mutual funds.
Print the post Back To Top
No. of Recommendations: 0
Sorry - the reply went early for some reason

Also, you can frequently buy stock in local utilities directly - e.g. Duke Power, First Energy -
although FE may not be a wonderful choice right now.

Good luck either way you choose.
Print the post Back To Top