78.2 F
San Diego
Tuesday, Sep 26, 2023

PERSONAL BUSINESS–Pink Sheet Stocks Could Leave You in the Red

Dear George: My friend says the best place to find good cheap stocks in on the Pink Sheets. Is that a smart thing to do?

, Bill, Carlsbad

Dear Bill: Thumbing through the Pink Sheets to find stock winners has about the same potential for profits as buying a lottery ticket. Sure, there’s a chance you may hit it rich, but the odds really aren’t very good.

The Pink Sheets are exactly what they say they are. Hanging on a clipboard in the operations managers office at most brokerage houses is a pile of pink-colored papers that list companies that do not qualify for listing on any of the major exchanges. These can be companies that are just getting started or the can be companies that have fallen from great heights.

- Advertisement -

I have always felt that cheap stocks were inexpensive for a good reason: They aren’t worth anything. Bottom-fishing in the Pink Sheets barrel can be a tremendous waste of time and money.

Owning a stock that is listed on the Pink Sheets carries several risks. For one, there is no guarantee that there will be a buyer when you want to sell. One of the advantages of trading listed stocks on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq provide a constant and active market that provides immediate liquidity.

And, most importantly, these companies often become the fuel for fraud. Online touts often pump up these worthless securities only to dump their shares after other have bid up the price. Buyer beware is appropriate advice.

Dear George: I have looked high and low but still cannot find a missing stock certificate. What should I do to replace it?

, Susan, San Diego

Dear Susan: Like socks and reading glasses, stock certificates seem to have a way of disappearing. Believe it or not, you are not the first person to lose a certificate. A few simple steps can get it replaced.

The first thing you need to do is contact the transfer agent who handles the company that issued the certificate. You want to request a “stop transfer” to be placed against the missing security. This is similar to placing a stop on a bank check and will prevent someone from transferring owners from your name to another.

The next step is to begin the process of replacing the certificate. This will be a little complicated and there will be some expenses involved. Before issuing a new certificate, a company will require that you file an affidavit explaining how the certificate was lost.

You will also be required to buy an indemnity bond to protect the corporation and the transfer agent against the possibility that the lost certificate may be presented later on. The bond usually costs between one and two percent of the current value of the missing certificate.

How do you find the transfer agent for the missing stock certificate? If you have owned the stock for some time you probably have some type of correspondence from the agent. The name will also be listed in the annual report for the company you own.

If all else fails, your broker should be able to provide you with the information. I would also suggest you contact the investor relations office for the company and see if they can help you.

It is situations like lost or stolen certificates that have caused many people to leave their shares in a brokerage account. “Book entry” or “street name” titling of stocks, bonds, and mutual funds can avoid the time and costs that are wasted when a certificate goes AWOL.

If you feel a strong need to take actual possession of your certificates, there are a few things you can do to make your life easier if the wind up missing. Make sure you have photocopies of the front and back of the certificates. Be sure to keep them in a separate and safe place. And, do not sign the stock certificate. Your signature makes the certificate a negotiable document that will make it easier for a thief to sell.

Chamberlin is the host of “Money in the Morning,” heard weekdays from 9 a.m. to noon on Ksdo.com A/M 1130. Send letters to P.O. Box 1969, Carlsbad, CA 92018, or E-mail him at (george@moneyinthemorning.com).


Featured Articles


Related Articles