Penny stocks often get a bad reputation because of the risks associated with investing in them. Priced under $5.00, these stocks present investors looking to create generational wealth with unique opportunities to do so on a shoestring budget. There is a little-known section of the stock market called the OTC Markets, where stocks that do not meet an exchange’s listing requirements can trade over the counter. Although some stocks traded on the OTC Markets are stable, they are still significantly riskier investments than are stocks listed on an exchange.
OTC Markets connects two parties looking to sell financial instruments directly with each other rather than on a public exchange. Common exchanges include the New York Stock Exchange and the Nasdaq. OTC Markets has fewer requirements and investing in assets over the counter can quickly result in a 100% financial loss. According to OTC Market’s website, “an investment in an OTC security is speculative and involves a high degree of risk. Many OTC securities are relatively illiquid, or ‘thinly traded,’ which tends to increase price volatility. Illiquid securities are often difficult for investors to buy or sell without dramatically affecting the quoted price. In some cases, the liquidation of a position in an OTC security may not be possible within a reasonable period of time.” In fact, studies show that the average OTC investment drops over 50% each year.
Why would someone invest in such a risky asset? The answer is simple: there is an opportunity for massive upside with even the smallest amount of capital. Imagine that you received 117 shares of stock for every dollar you invested. The price per share would be $0.0085. That is less than one cent for every share of stock. A $1,000.00 investment would secure 117,647 shares in what you hope will be the next company to make history. Now imagine that you picked the right stock and each share rocketed to over $1.00 in a few months’ time. What if this massive upside was only the beginning?
Sounds too good to be true, right? Wrong. This is exactly what happened with a stock that went by the name Tesoro Enterprises (TSNP). It traded below one cent over the counter just one year ago. On May 27, 2020, its trading volume was a meager 2,500. By July 9, 2020, however, its trading volume had reached over 86,000,000. At the time, there was little information on what was going on and it seemed like another pump-and-dump, a method used by investors to build hype around a stock to sell it at a higher price than it is worth. Then, news was released that Tesoro was going to merge with HUMBL, Inc., a fintech startup that is being compared to PayPal, through a reverse takeover transaction. The rocket’s fuel tank was topped-off and the ignition switch was hit. TSNP underwent a 4:1 reverse split, became TSNPD, and then changed to HMBL as it moved to Nasdaq, where it will likely gain the attention of more serious investors. Community boards praise HUMBL’s CEO, Brian Foote, for HUMBL’s approach to the global financial technology sector. Loyal followers refer to themselves as ‘Foote Soldiers,’ expressing their satisfaction with the CEO’s decisions.
Stories like these are generally only heard about after millionaires have been made. This is because most penny stock investors do not do their own research or take the time to see what others have found. Many OTC investors share their findings on popular community websites, such as Reddit and DD Squad, a community designed for asset due diligence. You should evaluate all information available to you and make an informed decision before investing in any stock. Many OTC investors who write due diligence articles on a particular stock have an interest in seeing the stock increase in value. Always evaluate whether the information you read is based on facts and whether the writer has disclosed any holdings in the asset discussed. More importantly, always evaluate the information available to you, perform your own research, and make your own educated decisions before making any investment.
The information contained in this article is for information and entertainment purposes only. It is not financial advice or a solicitation to make an investment. Do not invest in any stock mentioned here or elsewhere without first consulting a financial professional.