Jason is a longtime Investor and an advocate for having a personal finance strategy and personal savings to have financial freedom.
If you have been in the investing world for any amount of time, at some point you have probably heard of or thought if there are stocks that trade for less than a penny. After some research, you discover there hundreds upon hundreds of stocks that trade for as low as $0.0001 a share. Perhaps you are wondering what is the story behind these stocks and if they are worth investing into. This article is about what otc, or over-the-counter stocks, are and my personal experience with holding and trading these stocks over the last several years.
Otc stocks are stocks that are not listed in a major market but rather traded through third party brokers or dealers. Often times you can still buy these on major platforms such as E-Trade, but they are not apart of large exchanges like the New York Stock Exchange. Some brokerage platforms have heavy restrictions on the sale of otc stocks. These stocks are typically very small startup companies that have little to no ground to stand on. I find many times at most they might have is a brief description about what they intent to be, sometimes one or two people involved, and if they are lucky, a small office. Sometimes all they have is a filing saying they are a business and that is it. Make sure you research these companies before throwing your money at them.
Otc stocks live up to their reputation of potentially being highly fraudulent or high risk. Sometimes they may not be honest with their investors. Other times they end up going nowhere. I have seen many people fall victim to the pump and dump scheme with these stocks. The price starts to climb and investors will go all in thinking it will reach the moon, to end up being fooled and losing all their investment money. It happens all the time. The best time to buy into these type of stocks is when they are rock bottom and before anyone takes much notice to them. Never risk money you cannot afford to lose and do not fall for the gambling speculation trap.
My Personal Experience
I have been fortunate to have had some success with otc stocks in the last few years. In 2020 and 2021, the otc market saw a surge in popularity and many of these stocks that were sitting at $0.0001 climbed as high as 3 or 4 cents even. This ended up being the case for three in particular I was invested in at that time. One in particular I had an original investment of $200 and it reached to over $40,000. Another I had an original $30 investment and it grew to over $10,000, or over a 30,000% return. I would say those are more lucky returns, but every once in awhile this happens to people.
Now before you rush to get on your brokerage account and buy up a bunch of otc stocks, know this is a very rare occurrence and only small windows of opportunities open for returns like these. It is like a casino where hundreds of people will gamble and lose out, then a few come along and make it on their first try. Do not gamble your money on these high risk stocks unless you have leftover cash you are ready to potentially part with permanently.
If after all this you still want to invest in otc stocks, this is how I approach them. First, while stocks are meant to be long-term investments, otc is more in the gambling category, so only use money you are prepared to never see again. Second, I only will invest $100 to $200 at most for each one. This way if they surge, I will have a more than generous return on my investment. If they fail, I only lose out on $100 to $200. Not enough money to lose sleep over. Third, I usually pick 10 different otc stocks to put $100 to $200 into, and even if only a few take off and the rest fail, then I still come out way ahead from my original investments. If they all fail, it is nothing to lose sleep over still, it is the price we pay.
Picking these stocks usually defies all logic with investing, it is based upon feeling and not much logic can be involved. Most of the ones I gravitate towards are in the energy sector or the gold mining sector. In the otc world, you will find companies from every industry you can think of, so pick the ones that you feel are best for you.
So would I recommend investing in otc stocks? No, because you are gambling with these stocks, not investing. Perhaps someone will find the one otc stock out of several that will rise through the ranks and go on to huge heights, but it is a very small chance anyone will find that and even fewer will see it through to the end. Stick to your strategy for investing and know what your long-term goals are. If you have the extra money on the side that you are willing to gamble, then see what you can do. You probably have better chances making it in the otc market than you do at the casino. Again, remember there is a good chance you will never see this money again and only gamble what you are comfortable losing. Many brokerage platforms will not even allow the purchase of otc stocks due to the high fraud or high risk associated with them. This is a field you explore after all your regular investments and regular expenses are all taken care of and you have some cash leftover you are potentially willing to part with. I hope you found this article helpful and I wish you the best in your investment endeavors.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2022 Jason