Journalists routinely dish out investment horror
stories, cautionary tales about elderly retirees stripped of their
life savings by shady figures peddling—you guessed it—penny
stocks. Even legitimate business writers seem willing to take broadside
aim at penny stocks
along with the Pink SheetsĘ, the OTC Bulletin Board, over-the-counter
stocks and unlisted
stocks without so much as a nod towards over 1,000 reputable
companies whose stock falls into one or more of those categories.
This general lack of understanding is typified by an article that
appeared in the New York Times on August 25, 1996. The title
itself set the tone: "Hoping For Green In The Pink Sheets,
But Seeing Red." Here are a few excerpts from the article,
along with our comments (in the right-hand column):
|
| "...the pink sheets cover about 13,000 [companies],
mostly foreign." |
In fact, only 4% of Pink SheetĘ stocks
represent non-US companies. |
| "Smallness carries several dangers,
including thin cash reserves for future hard times..." |
No matter what size a company is, thin
cash reserves are a serious problem. That point aside, many small
companies actually have quite generous cash reserves. |
| "...[their] financials are often flimsy...You may
not even know how flimsy the numbers are. Information on these companies
is often scarce...Since [they] don't issue interim statements to shareholders,
how would you know if anything turns lousy?" |
Actually, information is often readily
available on a quarterly basis. Most Pink SheetĘ companies issue quarterly
reports both to their shareholders and to the Securities and Exchange
Commission. |
| "The companies are also exempt from S.E.C. proxy
rules—leaving open the possibility that shareholder rights will
be trampled" |
In fact, few of these companies are exempt
from SEC proxy rules. |
| Let's forget for a moment all of the actual
misinformation wrought by articles such as these. It is simply unfounded
to single out penny stocks or the over-the-counter market for these
attacks! The misperception fostered is twofold: one, that all penny
stocks are to be shunned, and two, that merely not being a penny stock
is somehow a guarantee of greater investment safety, especially from
fraud.
But nothing could be further from the truth. While there is no
doubt that investors have been swindled in penny stock schemes,
fraud is hardly a stranger to higher-priced stocks, the national
stock markets, or to other investment vehicles, for that matter.
You don't need to be a daily reader of the Wall Street Journal
to be aware that the 1980's and 90's alone have been fraught with
insider trading, securities violations and other white-collar crime
on a scale at times so grand that some of the largest and most reputable
securities houses in the world have been utterly brought down by
it. Penny stocks may not be immune, but neither are they the only
or even the preferred vehicle for investor fraud. |
