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Pink Sheets

Pink sheets is a listing of over the counter securities maintained by a broker.

Expanded Definition

Stocks which trade over the counter and not on an exchange are called pink sheets because they were originally listed on pink paper. Today, this is the home of companies too small or not meeting the requirements of major exchanges such as the NYSE.

However, Fools should generally steer clear of these, because it is also the home of companies not worth the pink paper their names used to be printed on. Penny stocks abound; companies with no revenue abound; companies with no product abound, even. And, unfortunately, so does a lot of hope and emotion.

For some reason, the idea of owning thousands of shares does something to people's brains. Those shares could be worth 10 cents each, but, hey, I've got 10,000 of them! Watch out baby! All it has to do is go to $1 and I'll have made $9,000! How cool is that?

Except, if the company has a vision only and no product, what exactly is going to be the catalyst that causes the stock to increase? Besides a pump and dump scheme, that is?

Fools, except for the one exception noted below, (keep reading) stay away from pink sheet stocks. You can get just as much excitement and actually have a better chance of winning some money by going to your local casino.

The Exception

Some foreign companies wish to have their shares available to U.S. investors, but do not wish to go through the regulations and papework required of having their shares traded as American Depositary Receipts or American Depositary Shares. These companies, like Nintendo or BMW are legitimate companies with real products and real sales and income. They might make a decent pink sheet investment. But not the rest.

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