Hot OTC
The Easy Way To Survive The Over The Counter Stock Market
I haven’t got to tell you that when talking of market investing it is a dog eat dog world! Make one little mistake and you can see many years of careful savings and investing disperse in the blinking of an eye. But the over the counter stock exchange, that could be a whole different animal utterly! The OTC market is the wild wild west where almost anything goes. If the regular stock exchange is threatening, then the OTC market is life threateningly dangerous.
Why is that? As the OTC market deals with little stocks that are really thinly traded. Even without nonsense, a stock will drop out of the sky as the company is just not superb. But under the nastiest of circumstances there are all sorts of silly things that may go on including manipulation and insider dealing because this market is not as firmly regulated as the major markets are.
Still, there are a couple of things you can do to help insulate yourself from almost all of the danger and that is what I am going to talk about in this post today.
The 1st rule is to only invest when you have a clear notion of why you wish to invest. Many times we buy hot OTC stock just because it is so inexpensive and we stand to make a murdering if it increases even a bit. That’s no reason to purchase a stock. You need to only buy stock for sound basic reasons, i.e. The company is a good company which has excellent prospects for future expansion. Without that future expansion, there is no reason to invest ever.
The subsequent rule is to understand that over the counter stocks are nearly always short term plays. This indicates that you should not buy one without a clear selling target under consideration. The stocks have a tendency to vary wildly in costs and in little time your sell target could be reached, often faster than you were expecting. If this occurs, pull the trigger and sell right away even though you are almost convinced to ride the wave a touch longer. What goes up quickly can drop down just as fast in the OTC market!
Next, understand that up to eighty five percent of all new issues will customarily be selling below their issue price in the first year and a half because many of these new stocks are expensive when they’re first issued and after the 1st year or thereabouts the buzz has worn off and the stock drops.
Next, pay attention to the auditors of a new issue. You’ll find out who the auditors are by reading the prospectus punctiliously. If you have never heard about the auditor, that sure is a red flag and you need to perhaps consider running away. Auditors are all about reputation. Without a rep and auditor’s numbers are just that… Numbers, they may not mean anything!
Ultimately , perform some research on the underwriters. If the agent that’s underwriting the OTC issue has been in difficulty during the past with the SEC, this might be a clear indicator that your OTC stock isn’t as solid as it may look. Good corporations use good auditors and good brokers for their underwriting. Less solid firms take what they can get.
Making an investment in hot OTC companies can be a large amount of fun, just as I am sure living in the Wild Wild West way back when was also a large amount of fun. If you suspect you have the personality then I just wish you all of the luck in the world, not that you can need it!