Let me make something VERY clear....... Pink Sheet stocks are pure GARBAGE. At least 99.9% of the time...and Im being generous. Pink sheets are non reporting, delisted companies, that can basically do what they want until they get delisted.
Think of Pink Sheets as a prison....sure there is a guy or two that are innocent, a few thats probably gotten a bad deal and doesnt deserve to stay there, but its pretty safe to say most of the individuals in there should be in.
Originally pink sheet exchange was created in to help people trade out of delisted stocks. Before 2000 delisted stocks were printed out on Pink paper by the National Quotation exchange, I think they wanted to use RED but couldnt read printing on it. (Before this you were out of luck if your company you held stock in was delisted. ).
With the surge in online trading and discount brokers some smart gentlemen created the pink sheet quotation market in 2000. Since then they have added tiers to separate the outright scams (Grey Market) for halfway decent and even some solid companies. (There is a Grey market, but for all intents and purposes you should NEVER, EVER even consider these...EVER...did I say NEVER? and I am not against risk)
Pink Sheets do have their place. Because of regulations, its an easy place for big foreign companies to trade here in the US (in addition to the broader markets). There are some high profile companies that trade on it, and even NESTLE does...yes, THAT Nestle. Louis Vitton, and Mercedes (Diamler) has a portion trading on the pinks. Not to mention chinese companies no one has heard of like the worlds biggest bank (by market cap) at over a quarter Trillion ( IDCBY.PK) !! Any of these pinks I have no problem recommending to the moderate risk taker...just not my style.
Pinks are also great to Short-Sell under the right circumstances, and on VERY rare occasions you can find a decent start up here. As a general rule however most of the pinks that get press are hiring stock promoters to pump their stock and defraud the average investor. This is why you should not buy any pink sheet that you read about without putting it through the ringer. Not even ones mentioned here :-)
I like to look into pinks for two reasons. Good short sell opportunities and to look for one of the few major US companies that get delisted and sent here, that although they deserve it, they may not be here long...(meanwhile their share price tanks)! This presents some nice opportunities for us riskier types! Now I must be clear, just because it is/was a big company, doesnt mean its a buy on the pink sheets. ENRON ended up a pink sheet after going from $60 to under $2...but eventually after it was clear that they were completely bankrupt, it went to a sub penny! In fact if you invested $10,000 in ENRON when it was $1 hoping it would recover to $2 or $10 (pipe dream by the way, but MANY did) and didnt sell for 2 months, your $10,000 investment was then worth...drum roll....$20...and eventually $1. Not the type of return Im looking for.
But for Every 10 Enrons there is a solid company like GSI Group...this is what I look for.
GSI Group- This major Laser maker was de-listed gem from the high profile NASDAQ that once traded over $25 and bottoming out at under $1.50. As they got their act together, this stock could be purchased for under a $2.50 a year ago! Suddenly with rumors of a impending re-listing....the stock sprang back to life and by September 2010 it was back to $7. Although trying to catch these waves early is very difficult and should be your focus, it was at this point when things where looking up. It wasnt until December when I took note of this with the impending re listing.... at under $9 it was a solid LOW risk buy. Not easily said of pink sheets. Now back on the NASDAQ, I would still recommend it under $13, with a 20% Trailing Stop.
So after all this I am not going to recommend a pink sheet??? Nope, not yet. I think the education is important at this point however since I have my eyes on a few future Pink sheet trades!
Hope this helps, and stay tuned...
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