3. Watch out for obfuscation, confusion and pie-in-the-sky promises!
Why would some companies choose to be quoted on the "Pink Sheets," or the OTC Bulletin Board? Actually, many fledgling firms don't have a choice, since they are unable to satisfy the minimum listing standards for the Nasdaq National Market or even The Nasdaq SmallCap Market.
But promotional literature sometimes inaccurately lists the stock as "Nasdaq Bulletin Board." Nasdaq would want you to know that there is no such thing, that these stocks are not authorized for quotation in the Nasdaq system and are not part of any major national securities market.
Often that obfuscation of a basic fact is deliberate. And if a company or its promoter will lie about such a small matter, what else will they lie about?
Try this: Unspecified claims of "major" developments, such as a "pending" acquisition or an "imminent" distribution agreement with a well-known company, are common distortions featured in scam stock promotions. Maybe an announcement is truly forthcoming, or maybe somebody made one phone call. But it makes a more exciting story to tell, and that's all that really concerns the unscrupulous promoter or broker.
Or this: Dramatic increases in projected sales or earnings. For example, Havana Republic (OTC Bulletin Board: HVAR), a cigar manufacturer which began operating only in 1996, says it expects to sell five million cigars in 1997. Toppers Brick Oven Pizza (OTC Bulletin Board: TBOP), a company with no reported income in 1996, forecasts $27 million in 1997 revenues and $165 million by 1999.
These firms may actually believe their pie-in-the-sky projections, but you shouldn't. Even projections from the biggest and most established companies should be viewed with caution. Outlandish projections from small, unproven companies are hardly worth the paper they're printed on.
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