The information below comes from Wall-Street.com.

INVESTING IN SMALL COMPANIES

market symbol market symbol

SIZE DEFINITIONS

What size is "small"? There are many definitions. Some people define a small public company as one with a market cap under $1 billion. Others define small cap as under $2 billion. And there are yet other definitions. Over the last two decades the word "small" has come to mean larger and larger companies! To confuse matters, NASDAQ's small cap market system continues to list truly small public companies, many of which would be classified as nano-cap by the definitions, below. Here are some current definitions from Investopedia and Investor Words.

The absolute
BEST
identity theft protection --
at a 10% discount!


Market CapInvestopediaInvestor Words
Mega-Capover $200 billionover $250 billion
Large-Cap$10 billion - $200 billion.$5 billion - $250 billion
Mid-Cap$2 billion - $10 billion$1 billion - $5 billion
Small-Cap$300 million - $2 billion$250 million - $1 billion
Micro-Cap$50 million - $300 millionunder 250 million
Nano-Capunder $50 million --

Our practical definition for this page is as follows: Once a company trades for $10 per share or more and trades on NASDAQ's 2 higher tiers, AMEX or NYSE we will not call it a small company.

Within our limited definition of "small companies" there still remain very large differences relevant to investing.

For example, if a company is on the OTCBB it is required to be a reporting company -- that is, is submitting to the SEC its audited quarterly and yearly data plus all information important for investors . Therefore you can access its stock performance and financial data at servers such as Yahoo, Hoovers, Market Guide and EDGAR -- right along side General Motors and Microsoft! SEC-reporting companies are required to comply with strict regulations relating to disclosure and accuracy. This includes the reporting regulations in Sarbanes-Oxley. An experienced investor has a chance to access the data necessary to decide if this company is a good investment. He also has reasonable expectation that the data is accurate.

If a company is on the OTCQX it, too, is required to be a reporting company; however it reports to PinkSheets LLC rather than the SEC. The Pink Sheets runs this premiium quotaion, trading, and disclosure service and makes the information available to the public. OTCQX companies do not need to comply with all the SEC disclosure regulations and can avoid the cost of complying with Sarbanes-Oxley, a huge expense for a small company. However, the OTCQX company must follow generally accepted auditing principles (GAAP) and have regular audits. Moreover, it must have an independent Designated Advisor for Disclosure (DAD), a professional "gatekeeper" for secondary market disclosure. The OTCQX is patterned after the London Stock Exchange's successful AIM system for small companies.

Which disclosure system will investors prefer? Time will tell.

If a company is on the Pink Sheets but not on the OTCQX, and is not reporting, it is hard to get reliable information. Pink Sheets LLC does have 15-minute delayed stock data at PinkSheets.com and they offer an electronic real-time quote system designed for OTC agency traders, OTC Issuers, institutional investors, and other investment professionals. The service is offered on a password-protected basis through a standard web browser at OTCquote.com .

EVALUATING PINK SHEET COMPANIES

Companies listed on the Pink Sheets' OTCQX tiers have ongoing operations and are the cream of the crop (see criteria, above). There are additional Pink Sheets categories to help you evaluate a company. From top to bottom they are: Emerging Growth, Adequate Information, Limited Information (yield sign), No Information (stop sign), Public Concern (skull & crossbones). These are summarized more in depth on the MicrocapLeaders.com History Page.

Following are some hints to help you interpret the information at PinkSheets.com.

RESEARCH SITES FOR SMALLER COMPANIES

In recent years there have been other efforts by web publishers to fill the gap left by not having a pink sheet trading site. However, compared to the audited figures submitted to the SEC by a reporting company (and hence passed on to the public) the independently published information can be scanty at best and unreliable, biased or untrue at worst. Although financial web publishing is a good idea, right now it is strictly "buyer beware" when it comes to the results.

If someone hypes stock in a thinly-traded, non-reporting, pink sheet company it is difficult to determine truth from fiction and to study the company along with its peers. Even if you decide the company itself is sound, what happens if you want to sell the stock? Other investors may hesitate to buy stock in a company they cannot easily research, track and trade.

Are there micro companies out there which are well run, pursue sound fiscal policies and which have outstanding, innovative, competetive products? Of course there are. However, investing is still a gamble. The company may grow into the next Microsoft. Or it may be bought by Microsoft to the advantage of the shareholders. Or, even more likely is a scenario similar to the (very short) animated feature "Bambi Meets Godzilla". If the product is really good, it is likely that a large company will decide to enter the market and with their superior capital simply put the small company out of business.

And then there are unscrupulous traders who make money illegally at the expense of the public company and its legitimate shareholders by using naked shorting. For more details, visit the National Assn. Against Naked Short Selling (NAANSS), a group formed to help end this practice. For additional information, visit Our-Street.com, an anti-naked-short organization based in the UK,

We have attempted to categorize the links, below, as: Stockbrokers, Newsletters & Research Sites, and Investor Relations Firms. IR firms are obviously paid by their clients to present information on the Internet. However, among broker reports, newsletter articles and research sites, it is not always easy to determine if the site owner has been paid by the subject companies. owns stock in the subject companies, or, on the other hand is totally objective. . Consider that a newsletter-writing guru from time to time owns stock in some of the hot companies he writes about (unless he is a total idiot!); therefore his perspective on those companies may become skewed. Reading the site's disclaimer is a good idea; however, lawyers tend to require that every client post a strong disclaimer. Therefore, this alone does not tell you how reliable the information might be.

How do you tell good information from doubtful information or an interesting gamble from downright fraud? Visit the following:

MARKET INDICES FOR SMALLER COMPANIES

A list of market indices specifically for Small Cap, Micro Cap and yet smaller companies ("Nano Cap"?) is maintained at Microcap Leaders.

MARKET MAKERS AND BROKERS . . .

. . . FOR PENNY STOCK, PINK SHEET AND SMALLER COMPANIES

These are stockbrokers who have indicated that they deal in smaller or unlisted companies, or who other people have said deal in penny stocks.

PUBLICATIONS AND RESEARCH ON SMALL COMPANIES

Some of these Websites say they try to be unbiased and objective. Some don't say. Yet others are up-front about the fact that they are IR firms and have been paid to do a profile on the company. We have not attempted to separate electronic media from print media. In addition, there are a burgeoning number of financial industry conferences which archive presentations as Webcasts. Many are sponsored by brokerages while others are run by magazines or commercial organizations. A partial list is found on the "Talking To Wall Street..." page at IR101.net.

Official Sites:
The OTC Bulletin Board run by Nasdaq -- This is the official site, with a wealth of information.
The Pink Sheets LLC Website -- This is the official site, with a growing bank of information.
Full-Color Print Magazines:
Equities Magazine -- Equities has bridged the gap between emerging public companies and the investment community for over half a century. In the 1980's the company was one of the first to sponsor corporate conferences, a role which has grown ever since.
Red Herring -- started in the '90s as a review of companies going public, this magazine developed a wider scope including cutting edge tech developments, venture capital and smaller public companies.
BDC Journal -- launched in 2004, this magazine features articles of interest not only to people investing in business development corporations but to everybody following the emerging-company market.
Newsletters, IR Firms' Profiles, Reports and Research Sites