Due Diligence 101 (a work in progress)
How to perform really solid due diligence and other assorted pearls of wisdom for dopes like me that buy penny stocks.
Knowledge is POWER. Educate yourself. If you find something worthy to help educate others...by all means post it. You have a standing invitation to do so. Help make this a better community by helping others to LEARN.
Real investing is WORK. Not physical work, but mental work. Equip yourself. Flex your mental muscles. Don't fall victim to the dangerous idea that you can just follow some other popular investor and do what he/she does and become rich quickly. That is a pipe dream! There are many people in this community that will readily testify to this fact. If you expect to make money buying and selling penny stocks then you need to first invest some time and effort educating yourself about the interesting and unusual OTC world.
Before you begin your journey of due diligence, settle this question in your mind: "Do I really want to buy penny stocks?" Included within that question are more nuanced questions such as: "Should I be buying penny stocks?" and "Why do I want to buy penny stocks?"
Here is something I wrote a while back that might help you answer these important questions: 25 Axioms of OTC Investing (please note well: this is required reading and entirely preparatory toward achieving meaningful due diligence).
About Due Diligence...
When I think about "due diligence," I am primarily thinking of fundamental elements that will cause the stock price to either appreciate or depreciate. When I begin the due diligence process I try to separate the data I'm finding into two entirely separate categories yet with mysterious and unmistakable overlap:
1. What is verifiable fact through filings, documentation, etc. -- we'll call this one the "HARD DATA" category, hereafter HD.
2. What the crowd is saying -- let's call this one the "PUBLIC BUZZ" category, hereafter PB. Think Peanut Butter LOL!
Understand the substance of this article as well and why we're sticking with only these two. www.investopedia.com/articles/stocks/07/micro_cap.asp
Understand the difference between stock fundamentals and technical analysis: HERE and HERE
So, let's do some Due Diligence! (This part is why you're here at this board, trust me). Here is a step-by-step walk-through that will cover the basics and then some...
First, we will discuss places to find HD (that's "Hard Data" did you forget already? Verifiable, factual stuff in filings, documentation, etc.)
- Determine the ticker and company name (duh)
Go to OTCMarkets.com and type in the ticker symbol of your company.
- Determine what "tier" the stock is. Is it current? Is it skull and crossbones? Look for the graphic next to your ticker! Is your stock in a desirable tier or a crummy one? Don't even think of staying invested in a skull & crossbones overnight!
Note the transfer agent. Write down the name of the agent, the contact there if provided, phone number, and email address if one is given. This is important data!
Note the share structure under the "Company Info" tab. We will talk about this more in a bit...
Write down any names you see there: CEO, CFO, Vice President, Secretary, Treasurer, etc, etc, etc. In just a minute you'll be googling all these guys...
IMPORANT...under "Company Info" tab look for past reverse splits or re-organization. It is worthwhile to google the past companies and see if the current principals are the same ones that pulled those shenanigans.
Find out in what state your company was/is incorporated.
Go to the company board on Investors Hub and look in the "intro message box" -- you will almost always find links to places necessary for thorough due diligence. VISIT THE ACTUAL WEBSITES. The information provided in the "intro message box" is often OUTDATED. Seriously...don't ever trust a stock message board for up-to-the-minute accurate due diligence. If some yokel is invested in the stock, and that same yokel finds some data that could positively impact the stock's price...there's a good chance said yokel will post it and cheer about it even though it could be data that is years old! Don't trust anyone except yourself. I can't pound the table enough on this!!!!! Don't be naive.
Visit the state website of where your company is incorporated. They often have very interesting filings. Most penny stock companies are incorporated in Delaware, Nevada, or Wyoming. A listing of most popular state websites is HERE. If you don't find your state there is a complete listing HERE.
Determine what level of scumbag the CEO (and other principals involved) really are. All of them are scumbags, by the way...that's simply axiomatic truth. Your job is to figure out if they are small scumbags or really big ones.
- Start googling. You can do this!
Visit all these boards and search for their name.
Do a public message search by their last name here on iHub. Like this ONE
- Get serious about the share structure. Call or email the transfer agent. If the transfer agent is GAGGED (i.e. they cannot give out the share structure) or it is the transfer agent's policy not to give out the share structure information...then make a decision to not be invested for long. Investing in stocks where you do not have ready access to current share structure data is fiscal SUICIDE.
Now let's talk about places to find PB (that is, Public Buzz...or "what the crowd is saying").
"Too much due diligence can ruin a good play!" I will comment on this soon.
- Remember that you can look up two "different" words that are mentioned in the same post too, this can help you to pinpoint "specific talk".
Create a list of things to look to look for. Some suggestions might include..., Dilution, Lie,CEO,Lawsuit,Bad,etc. "To each his/her own" of course. Every stock has it's own unique Universe of language. The negatives come to mind first because that's the problem you have to find and determine. Part of the benefit of using iHub is the ability properly gage investor psych. If you have 20,000 posts this become very useful obviously.
Consider well all these THINGS (these will help you answer the question: "Is this company a scam?")
OTC Nirvana! What would the Utopian penny stock pick look like? Find out HERE
Other useful links to help you perform due diligence...
For DD Category #2, "Public Buzz"
Some Promoters/Traders/Other Boards (nuthin' as good as iHub though!!!)
finance.yahoo.com (do a search for the specific ticker)
Buzz Detecting Tools
http://boardreader.com (enter symbol in search box)
http://www.ddmachine.com (look at Top 50 DD requests)
Can Retail Investors Short My Precious Penny Pick?
Other Links I Use Regularly
Is my stock on the Reg SHO list? http://www.nasdaqtrader.com/aspx/regsho.aspx
Reverse Split Repeat Offenders - Good DD tool...
Scammy, scummy stock & IR alerts - http://www.citronresearch.com/
Stockpatrol.com...take with a grain of salt, but decent info here: http://www.stockpatrol.com/
ADP Investor Communications (NOBO LIST)
Delaware Secretary of State - For Delaware Corporations
1) Go to: http://sos-res.state.de.us -
Find Articles ( Free and Fee Based )
Monthly Short Interest Reporting List
U.S. Securities and Exchange Commission
Link to all States/Secretary of States:
Links to several presentations on doing technical analyses of stocks:
Daily listing of stocks being pumped by compensated promoters: http://investorshub.advfn.com/boards/board.asp?board_id=9311
Helpful volume analysis linkage: http://www.stockwatch.com/
Time and sales and other data: http://quotes.freerealtime.com/dl/frt/S
Dollar volume: http://www.stockwatch.com/
info on promoted stocks
View FREE profiles of HOT women (and men)...
An interesting an amusing take on bashers and pumpers:http://messageboardfools.com/
iHub Board to refer to.
More great educational boards here on the hub.
Misc. Resources & Reference: