Hey FM, thought you'd appreciate this:
A good piece on DD, though a little extreme in parts IMO:
Investors, Read before buying: There are several key areas to look at when doing DUE DILIGENCE on an Over-The-Counter ("OTCBB") penny stock. And it doesn't even include looking at the financial information.....that is the least important thing to look at.
Some of the "keys":
1. Share structure and distribution is the FIRST place our eyes should go when looking at an OTC stock. Don't even READ the news until you know whether or not 5 million shares were sold at .005 to a company in the Cayman Islands or some other nominee account offshore (S-8 stock). The same can be said about any shares given at ridiculously low prices to those "investors" who may have provided the company some seed money or loaned it capital at a ridiculously low rate in comparison to the market rates. If so, you can be rest assured that there will be heavy selling on any run up, as each new buy is met with an insider sell, and the stock will probably then get heavily shorted near the top . . . and driven down to nothing . . .
and I do mean NOTHING.
2. If the company does not report their financials to the SEC . . . . RUN AWAY. Please don't even consider them, because they will surely rip you off any way that they can. And if they SAY that they will soon be reporting their "audited" financials . . . run even faster . . . this means they have NO INTENTION of filing with the SEC. Even if they say "we will be filing with the SEC" or even "we HAVE submitted our financials to the SEC....."DON'T BELIEVE THEM. For example, a stock that traded under the symbol MDCE once put out a half dozen press releases telling shareholders that they filed their financials with the SEC, but somehow, as if by magic, they have never appeared on the Edgars. This stuff is the BASICS of penny trading.
3. Was there a reverse split or reverse merger in its past? If so, there will probably be more problems or more reverse splits in the future.
4. How long has the company been in business? It is one thing for a company to come up with an idea, but it is CLEARLY another for same company to figure out a way to successfully market that product or service, and it is another thing yet, for the company to properly manage their money.
5. DO SOME DUE DILIGENCE ON THE COMPANY AND/OR THOSE WHO RUN THE
COMPANY. Take down the names of the officers of the companies, the investor relations people or firm and any other important parties and do a "entire website" search at the SEC. This is not an Edgar search and can be found on the main page of the SEC, which EVERY penny trader should know very well. If your party comes up in the search, you can know their history and if not, it does not mean they are "clear", it just means that they still could be under investigation or have played a smaller role in other scams, etc. or just have never been caught. Be UN-trusting as a defense to loss and you will increase your chance at gains. The easy way to do searches on SEC is to use "adj" between names like John Smith....."john adj smith"..... if it is an odd last name, it should be fine by itself... "stephanapolous" or "gianapolitana" or "santodominguez" etc.... otherwise use adj on firm names like "La Jolla adj Capital" or "La adj
Jolla adj Capital".....this will keep the thousands of uses of "capital" or the city "La Jolla" from coming up in the search. It means literally "adjacent" words. Were any of the officers registered
stockbrokers at any time? RUN A SEARCH ON THEIR NAMES at www.nasdr.com or by calling the NASD CRD Department in Rockville, Maryland. What about the company? Call it's hometown newspaper and see in there have been any articles run on it or any predecessor
firm. Call the NASD Distrcit Office for the area in which the company is located. See if the NASD District Office has any investigations it has done and can tell you about. The same for the SEC. LEARN AS MUCH AS YOU CAN!!!
6. Read the press releases with a cynical eye. If they say that the industry is reported to generate 14 billion in revenues each year and we estimate that our revenues in the coming year will be between 40 million and 60 million dollars.....RUN away. If there is no LOGICAL and detailed explanation of HOW the company plans to make ANY money.....then they don't have an idea nd won't make any money. They just plan to sell shares to you and those like you (i.e. the suckers that don't have a clue what they are doing) ANY reports of "projected" revenues should be based on PRIOR performance. If not, it is just a pie-in-the-sky arbitrary number picked out to make them look good to prospective penny traders. If the company headquarters
is in Vancouver, Boca Raton (and now here in West Palm Brach also), La Jolla, Denver or Las Vegas.....RUN AWAY (the same can be said of the broker reccomending the stock to you). There is an old saying in the record biz, where thousands of demo tapes are sent every week,
"if we reject 100 percent of those wanting a record deal, we will be correct in our decision 99 percent of the time and that ain't bad". By categorically denying ANY company hailing from these cities, thus rejecting 100 percent of them you will be correct in your decision 99 percent of the time and that is not bad. Other suspect cities, which would require EXTENSIVE DD to justify, include New York City, Dallas, Houston, Palm Springs or other cities of the Coachella Valley, Ft. Lauderdale, Lake Mary or other cities in South Florida, any city in Nevada, ANY city in Canada where everyone can short-sell penny stocks, any other "resort" city. If Gucci has a store there then chances are your company does not operate a 50,000 square foot building in the same town but rather is just one of many operations out of a small office there.
7. INVESTIGATE (also see number five above). A good way to find out about the company.....CALL THEM.....NO!!! I don't mean to call the number they provide you, I mean call the local area directory assistance and ask for the company name. I have even gone as far as
asked for the numbers of each of the officers of suspect companies, only to find that NOBODY had a listed number, not even the company. If the company has an unlisted number, think about it. This means that their customers or clients will not be able to find them and they are absolutely bogus. If the CEO or his wife answers, or there is a baby crying in the background, guess what? The company is being run out of the kitchen table of a house. Another good trick, is to offer to visit the company headquarters on short notice, say something like I will be in town first thing in the morning and would like directions to the company headquarters, so you can report back to your thread on whatever chat board you belong to (Raging Bull, Silicon Investor, etc - yes they all read our threads). If they say the company is moving, under construction, or give ANY reason whatsoever for not allowing you there you have your answer.....they are bogus......don't believe them. If they offer to meet you elsewhere, or to guide you in, decline and say, you may be late and insist on getting precise directions to the company headquarters. This may sound funny but you will be amazed at the number of companies that will refuse to tell you. If you are still interested in the company at this point then you must ask yourself how much you are willing to lose. If you are "investing" 2,000 or more dollars, then go to Southwest Airlines website on a Tuesday thru Thursday and book a 33 to 99 dollar "internet special" flight there and go and see them for yourself. For just a same day trip, or overnight if you feel
adventurous, for just a few hundred bucks, you can get a first hand account of where your money is going. If they sell goods over the net or in stores you want to see the warehouse, as well as the shipping and receiving departments (i.e. they should be impressive even if it is tiny). If they sell services, you want to see the laborers performing these services. If the company is nothing more than a small office with no laborers, because they "farm out" or their workers work "out of their homes".....RUN away.....that is a lie.....the company is in business just to sell shares, in which case, be sure to note the leather interior of the CEO's car because that is what your 2,000 bucks bought. Note the name, or names, on the door. Instead of the company name, does it say "capital..... equity.....investor.....relations.....financial".....etc??? Do you know why? Because they operate NUMEROUS companies from the same office in which case, your presence is not only NOT WANTED it is threatening to their livelihood. If that is the case, I would not bother to even enter, as it may be a potentially dangerous or threatening situation. I would turn around and never look back.
But here is the part of penny trading that is the most important of all, and what I expect from each of us here on the fishing thread, when you have information about these companies like that described above, and someone else is getting suckered into the same company, have the decency to tell them. You don't need to go on the thread and tell everyone they are invested in a bogus company, chances are good that they have already figured that out, but in the course of daily discussion, when the name pops up, you can shed some light. Do not hold back.
If they were unlisted, say so.....If they have convertible debentures from an offshore placement, say so.....If there was a 1 for 100 reverse split a year ago, say so.....etc etc, etc.
Not every company on the OTC or the Nasdaq is bogus, but welcome to the Over-The-Counter market of Electronic Bulletin Board and Pink Sheet stocks. Out of 100,000 issues, 90,000 are scams or potential scams, 9,000 are clueless, and 900 are really trying. Do the simple math that leaves 100 that are worth buying. Do some homework and you will greatly reduce your chances of buying at least one of the 90,000.
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