By Tom Allinder, New River Financial Group, LLC

I began trading stocks back in the mid 90’s and for the first year or two, I only traded NYSE, AMEX and NASDAQ stocks. I had no clue that there were stocks listed on what was called the Over the Counter Bulletin Board (OTCBB) at less than a dollar a share. I thought all stocks traded above a dollar. I followed posters on big message board sites for the listed stocks until one day… I was just surfing through the message boards and stumbled on many threads where many people were discussing stocks trading at prices well below a dollar. The discussion was more cheerleading than is was of company fundamentals or technical trading patterns; I was intrigued. These people were having a lot more fun than the posters on the threads of the “real companies”. And in many cases, their one day gains in the market dwarfed what people were making on listed stocks. The first stock that I followed on the message boards went from half a penny to over nine cents. None of the listed stocks had those sorts of gains. Not only that, but you didn’t need an account with 6 figures in it to trade and make big bucks. The message boards had leaders and many followers and it was clear that if a stock got a lot of discussion on the threads, it would perform in most cases. Some message boards were money makers and many were not. It was easy enough though to figure out that the most popular ones covered stocks that had the most action. By the late 1990s, the companies were beginning to figure this out too…

Along Came the Chat Rooms

In the late 90s the chat rooms were starting to form. There was little audio like there is today but chat room participants could type messages in for all to read in real time. Like the message boards, the chat rooms that had the most followers seemed to easily influence a stock’s direction. If there was a lot of discussion on a particular stock, the stock got a lot of volume and in many cases saw gains, sometimes substantial gains. Into the early 2000’s, audio capability was built into chat rooms whereby participants could voice their opinions to all the people in the chat room. The chat rooms began to become the primary source of information for people looking for ways to make money in the penny market. Some of these chat rooms became so popular that if a few key people banned together, they could literally move almost any stock out there. It reached a point in the early to mid 2000’s that if a stock didn’t have the “buzz” in the chat rooms, it would have a hard time moving up in the marketplace. A few companies and people in the business end of OTCBB and Pink Sheet stocks began to realize this. But there were few companies that followed message boards or what was being said in chat rooms. Nothing has changed since then.

Ignoring the Investors and Traders

Over the last 10 years or so, I have talked to many CEOs and people in management of OTCBB and Pink Sheet Companies. They openly wonder why their stock is not popular with investors and traders. Instead of using the means available to them to get what they really need, they resort to a bottomless pit of financings to raise money. Their stocks continue to head down and eventually become essentially worthless. Some companies put out news only every 3-6 weeks. Many of those news releases to the public contain little if anything that would excite the trader or investors hanging out in the chat rooms and on the message boards. Most people think that there are no retail investors and traders left out there. Nothing could be further from the truth!

They are Waiting

There are lots of people still trading OTCBB and Pink Sheet stocks. Not as many as there used to be but there are still thousands of them all over the globe. These people are there every day waiting for the next big thing in the market. When a company gives them what they want, a good story, frequent news updates and a genuine concern for the people that own their stock, the investment world responds. It is the people in the chat rooms and on the message boards that will popularize the stock and send it on its way upward. But many company officials sit on their hands complaining about the market. Sometimes they will send out one good piece of news and get a small response. It is never enough for the company though and they once again, give up and go back to complaining and looking for solutions in all the wrong places. There is no plan, no persistence and many company officials go into any new endeavor with a negatively expectant mindset.

The Power of the Chat Room

Many of the people in chat rooms are survivors of a market that has had more down days than up days recently, especially with regard to the OTCBB and Pink Sheets. Who is in the Chat Rooms? The leaders of the chat rooms are savvy traders and savvy followers that have a significant amount of experience. At times in the past, the chat rooms were full of inexperienced traders that would buy anything with hype surrounding it. Now the rooms are dominated by people that have learned from mistakes in the past. They have learned to look at company filings before buying a stock. They have developed resources to enable them to avoid all the pitfalls that still exist in the marketplace. Most of all, I will tell you this: The chat rooms and the message boards are loaded with players that are technicians. With a glance at a stock chart, they can tell if there is any possibility that a given stock stands a chance of moving up. If a stock has poor technical indicators, they will not touch it regardless of how good the story is. What does a stock chart tell these traders? On a chart, with just a few technical indicators added in, the technician can see toxic financings and dilution of the stock over time. In order for a stock to move up, it must be accumulated by investors and traders. That accumulation cannot be offset with equal or greater addition to the public float by the company and third parties such as financiers etc. Most of the financings that are going on in the market right now will ultimately lead to the company going out of business. Many companies have more than one financing in place and one financing package leads to another and another and so on. A company can only rob Peter to pay Paul so many times. The savvy traders and investors that use technical analysis and read filings will know the game is up long before most others do.

When these “leaders” of chat rooms and message boards find a stock they like; meaning a good chart and a good story, they will buy it. They will tell others. Those “other” people will pass it on to yet more people. It has a snowballing effect. The chat rooms and the message boards are very powerful with regard to movement of OTCBB and Pink Sheet stocks; especially in a slow market. Many individuals in management of OTCBB and Pink Sheet Companies are oblivious to this…

The Dark Side of the Chat Rooms

In the chat rooms, not only are the good technical stocks with good stories talked about, but there are many instances of bad stocks being discussed. The chat rooms and the message boards are full of people putting deals together. Their job is to go out and sell the stock to the public. If it’s a good company, no problem as long as they are up front with the company’s story. But, all too often, bad companies are paraded out onto the Pink Sheets (the OTCBB has really been cleaned up over the last few years) and sold to the public as a great story and a great company. Often times, the inexperienced traders will buy the stock based on the hype created in the chat rooms and on the message boards.

Other schemes run in chat rooms include the front end load and hype plays. This is where a few traders band together and accumulate a stock then hype it in the chat room as soon as they are fully loaded. They sell their stock to the inexperienced traders at higher prices on the hype. Sometimes these plays can last for days as more and more people join in the hype and the stock moves higher and higher. Ultimately the stock collapses and lots of inexperienced traders lose money and get understandably upset.

The Same Old is getting Old

The heavily promoted plays and the front end load and hype plays are working less and less now. Many traders have been exposed to these sorts of things and have left the market or have gotten too smart to be had again. It now seems the only people left in the chat rooms and on the message boards are smart and experienced traders that rely on filings and technical analysis to guide them. Any company’s stock that does not have good technical indicators and inform their shareholders on a regular basis stands little chance of success in the marketplace. There are simply too many experienced eyes and ears out there.

The Future is Now

The market is slow and the retail buyers out there in the chat rooms and on the message boards are savvy traders with experience. What is the solution? I think the solution starts with the companies themselves and secondly with the people representing the companies to the retail investor and trader. A good story is not enough. A company must have strong fundamentals and be financially sound to be successful in this market. The companies have to take care of their shareholders and update the investment world on a regular basis. It is a longer term approach but it is the only way left… The old fashioned way…