OTC Stocks... What do you think?

A

alpha1

Hi Guys,

I want to first say I have never traded OTC stocks and I know they in general have a bad reputation and it is rightfully earned. The difference between OTC and exchange traded stock is not a difference in the starting prices of the stock (dollars vs pennies) but a lack of disclosure. Sometimes companies that want your investment don't want you to know everything about their business. Ergo, making it a tricky and risky process to invest in companies, that might have great potential to become leading companies. Lets be honest, OTC is how many stocks get started.

I want to show you a stock I have had my eye on -- QPSA . This stock traded for pennies in 2009 now its $12.70 a share. Its on online dating website for hispanic/latino persons. A dollar invested in this company in 2009 would have returned you 1000 today.

What do you guys think of investing in a stock OTC for the long term on the potential of it becoming a great business? Should you put more weight on fundamentals? Is liquidity an issue in these types of stock (owning a large share and being unable to sell them quickly?). Let me know how you guys feel.

Thanks!
 
Quote from alpha1:

What do you guys think of investing in a stock OTC for the long term on the potential of it becoming a great business? Should you put more weight on fundamentals? Is liquidity an issue in these types of stock (owning a large share and being unable to sell them quickly?). Let me know how you guys feel.

Thanks!
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I think your odds of success are similar to buying lottery tickets. You should put less weight on the fundamentals because they are not as reliable. Yes, liquidity is an issue, I've been caught in a position where the spread went to 25%. 25%! It's tough to profit when you have to give up that much (I'm more careful now). I'm not against trading OTC stocks, I often trade them. But I trade them, I don't hold them long term. Tim Sykes would tell you that 99% of them end up going out of business:
http://www.timothysykes.com/blog-posts/

And here is a site with a good free book that covers some of the high points about Penny stocks:
http://superstarsoftrading.com/

I suggest you understand what you're getting into before putting any significant money at risk. And if you ever get one of those promotional mailers, e-mails, spam, etc. that says what a great buy some stock is, take the time to find and read the fine print disclaimer. More often than not it is just a paid advertisement dressed up as a newsletter, hot tip, etc. I received one today, the publisher was paid $400,000 to promote the stock and they may be actively trading the stock. This means they bought ahead of anyone that listens to their advise and will likely sell ahead of them as well, it's called a Pump and Dump.
 
This stock traded for pennies in 2009 now its $12.70 a share.

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It's usually the other way around for me. :cool:

Note to self:

Was that .05 or .005 or .0005 duh I still have it, forgot the name, maybe adelphia lmao, I'm not a sore loser.

I keep it as a reminder of what one must never do.
 
Guys, the stock I am referring to is not a penny stock. It sells for over 12 a share. Does that make a difference? The problem I fear is a liquidity issue. If the Bid-Ask spread is too high to make a profit off of these stocks is a legitimate argument and if finding a seller is a tough thing, that would imply slow execution time and therefore you can never be guaranteed the price you want to sell at.
 
Many if not most otc stocks are penny stocks and many if not most penny stocks are otc stocks. They are similar. The stock trades about $1.4M per day over the past couple months. Assuming you can take a position of 1 to 2% of the daily average $ volume without pushing the price (generally one can) then you could easily trade a position with as much as $30K in this stock - at current price and volume. I know of people that regularly take positions that are much larger % of the daily $ volume than that. And the longer you plan to hold the less important the spread is.

Liquidity is not the issue. The issue is that you said you are looking to buy and hold an OTC stock and that says to me that you don't know how extensive the manipulation in this space is.

I did a quick google search on the stock and see it is being hyped by Ian Cassell on AlphaTrends. So I googled Ian Cassell. According to this article: http://www.timothysykes.com/2010/01/why-ian-cassel-is-a-liar-shady-stock-promoter/

... Ian Cassell was paid to promote a stock, something he says he does not do:
http://seekingalpha.com/author/ian-cassel

If you have no ethics, this is a great business model. Someone hires you to promote the stock, you then buy shares in the stock, then you promote the stock and run up the price (the pump), then you can sell your shares at the higher price (the dump).

Now I don't know who's right and who's wrong and I don't care because I don't buy and hold otc stocks. I trade repeatable patterns. This stock is up 400% over the past year so my bet is that you are late to the party but time will tell. This could be one of the few that just keeps going and going.
 
Quote from dwpeters:

I think your odds of success are similar to buying lottery tickets.
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there are only a few thousand penny stocks.. some will explode
 
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