Investors Seeing Pink?

Even as many investors are searching for safe havens, others are sifting through some of the riskiest investments in search of a place to put their money. In the so-called “pink sheets,” named for the pink paper they were once printed on, investors can find more than 5,000 companies that are not listed on any US exchange. (The pink sheets have now gone electronic at www.pinksheets.com.)

Although there are some high-profile names on the lists, they are mostly small companies that either have been de-listed by the major exchanges or that choose to trade on the pink sheets to be free of SEC regulations and compliance with Sarbanes-Oxley accounting rules.

Because the companies on the pink sheets don’t come under SEC scrutiny, information on them can be less than reliable. In fact, more than 3,000 of the 5,000-plus firms on the pink sheets come with a “no information” rating from Pink OTC Markets, which runs the “pinksheets” web site. That makes trading in these companies extremely risky, according to many market experts. Another downside is that stocks on the pink sheets are less liquid; once an investor buys in, it may be hard to find a buyer if he or she wants out.

Investors who want to play the pink sheets in spite of the risks should use extreme caution, say many financial advisors. In addition to advising rigorous due diligence, financial experts also caution buyers not to invest money that they can’t afford to lose.