Penny Scarce
Micro Cap Stocks – Can They Help Your Portfolio?
A novice investor interested in finding information on micro cap stocks might be faced with challenges. Finding accurate and abundant information on micro cap companies-including information on management, operations, products, and finances-can be an investor’s nightmare. For example, many companies this size are not required to file financial reports with the Securities and Exchange Commission (SEC).
An interested investor may do well to first ask: “What exactly are micro cap stocks?”
Very simply, micro cap stocks are issued by companies with very low market capitalizations. Market cap is calculated by multiplying a company’s outstanding shares by the price per share. Large cap companies have over $10 billion in market cap, mid cap companies have between $1 billion and $10 billion, and small cap companies have a market cap of $100 million to $1 billion. This means we can consider companies issuing micro cap stocks to have less than $100 million in market cap. These stocks tend to be low priced and trade in low volumes.
An investor might then ask: “Where do these micro cap stocks trade?”
Many micro cap stocks trade on the Over-the-Counter (OTC) securities market and are quoted on the Over-the-Counter-Bulletin-Board (OTCBB) and on the Pink Sheets. Stocks listed on the OTCBB must meet SEC requirements, but those listed on the Pink Sheets do not have the same stringent requirements. OTC trading differs from stock exchange trading, such as via NYSE or NASDAQ. The OTCBB is an electronic quotation system used by brokers and dealers to post real time quotes for OTC securities. The system is not available to the micro cap investor who has to use a broker/dealer to complete a trade.
It is important to note in 2012 the Financial Information Regulatory Authority (FINRA) will rename the OTCBB as the NNQS (Non-NMS Quotation Service) and will be posting details and a timeline soon.
Market Brokers and traders may use the Pink Sheets to publish their bid and ask prices for micro cap stocks. The Pink Sheets are not registered with the SEC, nor does the SEC regulate its activities, posing a potential risk to investors interested in micro cap stocks. The Pink Sheets are named for the color of paper on which they’ve historically been printed.
After learning more about micro cap stocks, it is wise for any investor to perform due diligence and consult a trusted financial advisor. As mentioned, many investors will find information about micro cap stocks to be scarce, leaving the field open for potential fraudsters to spread false information about micro cap companies. It is comforting to note the SEC has taken severe actions against investment wrongdoers, but it is always wise to protect yourself from incurring any major losses by learning how to spot red flags or causes for concerns.
About the Author
Before investing in micro cap stock, know all about things you should consider. Sign up online for information about micro cap stocks at Killerpennystocks.com.
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