1. Lack of Information Available to the Public
The key to any successful investment strategy is acquiring enough
tangible information to make informed decisions. For micro-cap stocks,
information is much more difficult to find. Companies listed on the pink
sheets are not required to file with the Securities and Exchange Commission
(SEC) and are thus not as publicly scrutinized or regulated as the stocks
represented on the New York Stock Exchange and the Nasdaq. Furthermore,
much of the information available about micro-cap stocks is not from credible
sources.
2. No Minimum Standards
Stocks on the OTCBB and pink sheets do not have to fulfill minimum
standard requirements to remain on the exchange. Sometimes, this is why
the stock is on one of these exchanges. Once a company can no longer
maintain its position on one of the major exchanges, the company moves to
one of these smaller exchanges. While the OTCBB does require companies to
file timely documents with the SEC, the pink sheets have no such requirement.
Minimum standards act as a safety cushion for some investors and as a
benchmark for some companies.
3. Lack of History
Many of the companies considered to be micro-cap stocks are either newly
formed or approaching bankruptcy. These companies will generally have poor
track records or none at all. As you can imagine, this lack of historical information
makes it difficult to determine a stock's potential.
4. Liquidity
When stocks don't have much liquidity, two problems arise: first, there is
the possibility that you won't be able to sell the stock. If there is a low
level of liquidity, it may be hard to find a buyer for a particular stock,
and you may be required to lower your price until it is considered
attractive to another buyer. Second, low liquidity levels provide
opportunities for some traders to manipulate stock prices, which is
done in many different ways—the easiest is to buy large amounts of
stock, hype it up and then sell it after other investors find it attractive
(also known as pump and dump).
The key to any successful investment strategy is acquiring enough
tangible information to make informed decisions. For micro-cap stocks,
information is much more difficult to find. Companies listed on the pink
sheets are not required to file with the Securities and Exchange Commission
(SEC) and are thus not as publicly scrutinized or regulated as the stocks
represented on the New York Stock Exchange and the Nasdaq. Furthermore,
much of the information available about micro-cap stocks is not from credible
sources.
2. No Minimum Standards
Stocks on the OTCBB and pink sheets do not have to fulfill minimum
standard requirements to remain on the exchange. Sometimes, this is why
the stock is on one of these exchanges. Once a company can no longer
maintain its position on one of the major exchanges, the company moves to
one of these smaller exchanges. While the OTCBB does require companies to
file timely documents with the SEC, the pink sheets have no such requirement.
Minimum standards act as a safety cushion for some investors and as a
benchmark for some companies.
3. Lack of History
Many of the companies considered to be micro-cap stocks are either newly
formed or approaching bankruptcy. These companies will generally have poor
track records or none at all. As you can imagine, this lack of historical information
makes it difficult to determine a stock's potential.
4. Liquidity
When stocks don't have much liquidity, two problems arise: first, there is
the possibility that you won't be able to sell the stock. If there is a low
level of liquidity, it may be hard to find a buyer for a particular stock,
and you may be required to lower your price until it is considered
attractive to another buyer. Second, low liquidity levels provide
opportunities for some traders to manipulate stock prices, which is
done in many different ways—the easiest is to buy large amounts of
stock, hype it up and then sell it after other investors find it attractive
(also known as pump and dump).
No comments:
Post a Comment