IFB182: OTC Stock Basics; The Best Free Tool for Stock Market Data

Welcome to the Investing for Beginners Podcast. In today’s show we discuss the basics of OTC (over the counter) stocks and the best free tool for stock market data.

Buying and selling OTC stocks is not the same as investing in known entities, and understanding how that world works is the key to success. Check out last weeks episode on penny stock investing with Timothy Sykes for guidance.

The free tool, quickfs.net is the best tool out there for seeing long-term (10 years) financial data. Having access to this free tool allows you to see the performance from a higher view, allowing for better questions and deeper analysis.

For more insight like this into investing and stock selection for beginners, visit stockmarketpdf.com


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Announcer (00:02):

I love this podcast because it crushes your dreams and getting rich quick. They actually got me into reading stats for anything you’re tuned in to the Investing for Beginners podcast led by Andrew Sather and Dave Ahern. A step-by-step premium investing guide for beginners. Your path to financial freedom starts now.

Dave (00:33):

All right, folks, we’ll welcome you to the Investing for Beginners podcast. Tonight, we have episode 182, Andrew and I will read three great lists of your questions, and we’ll go ahead and do our usual. Good. We’ll give a date. So I’ll go ahead and read the first question we have. Oh, by the way, happy new year to everyone. This will be coming out around the beginning of the new year, so I hope everybody had great holidays and enjoyed the new year. And I think we all will say hallelujah, that it’s 20, 21, and 2020 is behind us. So hopefully, everything will go great this year. Amen. All right, so let’s go ahead and read the first question. So I have Hey Andrew. What are the ups and downs of buying an OTC stock?

Andrew (01:18):

Alright, so OTC stock stands for over the counter stock. If you listened to our episode last week with Timothy Sykes, we talked about penny stocks. And so, a lot of OTC stocks can be penny stocks. They might; I’m not sure if all OTC stocks are penny stocks, but a lot of OTC stocks can be penny stocks, but not every penny stock is an OTC stock. So what’s a penny stock. What’s an OTC stock. So a penny stock is any stock that’s trading at $5 or less. And so you’ll see that on the ticker on a financial website, wherever it is. And that’s how you define it as a penny stock. OTC is something where you actually can’t trade it like you normally would through ally or a third fidelity where you can just click and buy shares or click and sell shares. You have to get on the phone and go through the whole process.

Andrew (02:19):

And so for one, it’s, it’s, it’s very inconvenient to buy an over-the-counter stock OTC. Secondly, it is not regulated parlay at all. There’s usually very little transparency and the regular sec regulations that you would have for a stock. If it was listed on the NYC, New York stock exchange, or the NASDAQ, those listed stocks have regulations by the sec. So they need to present financial statements. They need to get those statements audited by professionals; the OTC stocks don’t necessarily have those same regulations, restrictions, or requirements. And so it can be problematic for you as the investor because the management of those stocks can do whatever they want. And you don’t have a lot of recourse on making sure that management is attempting to present the correct information to you. And there’s just really little oversight. And so you don’t have a lot of protection in that sense because it’s over the counter.

Andrew (03:33):

There’s not going to be a lot of liquidity in the stock. For example, if you’re the trade Apple or Tesla or Google or something like that, it would be very easy for you to log into Fidelity or Ally and put, buy, or put sell. And you’ll immediately have somebody on the other side to either sell your share from you, sell you a share, or buy a share from you in the case of stocks, where there aren’t a lot of people trading them, you could be trying to sell a stock, and you have no buyers whatsoever on the other side. And so that can be problematic if you’re trying to get in and the fair price or get out at all. Finally, from the interview last week, Timothy made a great point where he mentioned how many penny stocks don’t become great companies.

Andrew (04:31):

Many of the great companies you see today were started as great companies. They IPO those great companies. And so it’s very rare for something like a penny stock to become something that you’ll eventually see in the S and P 500 and become from an OTC stock to something that’s 500. I have never heard of that personally. And I don’t see it as being a very common thing that happens. So obviously, being somebody like me with my values, investing for the same term, wanting these businesses to be safe, reliable, and, you know, growing decently over time, the OTC market is just never, never in my sphere whatsoever. And so, you know, I guess I didn’t really, he asked for the ups and the downs. I didn’t present any ups, but I guess you could say that similar to a penny stock, there can be many benefits if the stock pops.

Andrew (05:33):

Many of the factors that make it speculative and risky can also work to its upside because there can be huge swings and big fortunes made in very short periods that you won’t see in quote-unquote, the regular stock market, the S and P 500. You know you, you have to realize that there are both sides of it. So you can, I’m sure you can make a big some very quickly the question behind whether that’s in line with what you’re trying to do and how possible it is to do that repeatedly, consistently, those are all different questions, but hopefully that presents the basics behind an OTC stock.

Dave (06:17):

It does, to me in it, I learned something listening to you talk about it. I frankly didn’t know a lot about the OTC stock, because like you said, it is not an area I play in at all. And so it’s just one of those things where it’s out of sight, out of mind. And I haven’t honestly paid much attention to it. Still, I guess one thing that I think about that after talking to Timothy last week would be that if you’re going to go into this type of field and look at investing in some of these kinds of companies, you’re going to want to do your research. You’re going to want to do some homework and figure out what it is is the advantage and disadvantage of these particular companies. As he mentioned last week, if you’re not, you’re just gambling; you’re just basically going to Las Vegas and putting some money down and hoping that it goes up or down.

Dave (07:08):

And I guess that would be my advice. If you will, if you’re going to look at something like this, do some homework and figure out if you already know, then Hey, more power to you. But if you don’t, then I would recommend you at least do a little bit of research before you start plugging away at something like that. Yeah, I agree. Yeah. Thanks. All right, so let’s move on to the next question. So I have a hi guys. Thanks for everything you do with the podcast. My question is related to moving stocks from a taxable account to a Roth IRA. I started investing in the USA in 2020. I’m Canadian, aren’t they all, but I moved to California at the end of 2019 on a work visa before knowing that the Roth IRA was a good option for a non-citizen. I started investing in a taxable income earlier this year and had not had to sell stocks until now. I just realized how much taxes will eat up profits quickly, even with long-term capital gain taxes. I have now contemplated selling all of my air quotes, newer stocks, three to five stocks that did not have much time to grow in my taxable account, and opening a Roth IRA and buy those stocks again before the new year is up. What are your thoughts?

Andrew (08:23):

Thanks for the question. This was from Nick, actually from the secret Facebook group we have for VTI spreadsheet clients. So great to get the question and happy to pitch in a couple of thoughts. I like the idea. So, you know, essentially having some money that wasn’t a taxable account, moving it to a Roth IRA so that you can get the tax benefits of saving for retirement and utilizing that vehicle. And I also like the idea of selling the newer stocks, which maybe haven’t gone up in value as much. And so you won’t have to pay as many taxes on it as you would, maybe something you bought two, three years ago. I don’t see a problem with it. And I would say the only other thing I would add would be that in the first three, maybe four months of the year, I know for sure the first three may be the maybe April too, you’re able to contribute, and kind of backdate it.

Andrew (09:28):

So it still applies for the last year. So if you’re talking about January of 2021, you can still make a contribution to your Roth IRA for 2020. Your brokers should have that option for you when you put contribution to pick the tax year. And so they give you an extra three to four months to contribute. In case you didn’t have a chance to reach your maximum contribution in the year prior. So that’s something to keep in mind too if you just don’t want to touch the money. And maybe you’ll; you’ll make some savings from the first couple months of the year, throw that into 2020, and then finish with 2021, or, you know, you could do it all at once too. I know many of us to like to chomp at the bit on getting money into the market right away. And I get that, but those are kind of some of the options and some of the thoughts I had,

Dave (10:21):

I would agree with all that. And I think it’s a great idea for him to start putting the money away Now and get everything lined up the way he wants it now. So it’s not something he has to play with a few years down the road when maybe those other positions have gotten larger than he really wants to deal with the tax implications, or even just losing the extra compounding that he could lose from those companies. So if those were still great investments now, as they were, then I, I, I don’t see any, I think it’s a great idea. And he also mentioned that I didn’t do; I didn’t read that he wanted a dollar-cost average, another $500 a month into the account, and when he has excess, put it in a taxable account. And I think that’s all that sounds, so he sees he’s definitely on the right path.

Andrew (11:11):

So I think Nick’s doing a great job with that. So let’s go to the last set of questions.

Andrew (11:18):

This one says, greetings, Andrew; I very much appreciate your email newsletters book and podcasts like you and Dave. I am also a big baseball fan and a big fan of statistics and baseball, also called sabermetrics and fantasy baseball. One of the things that helped me a great deal was absorbing as much information as I could from people who study baseball for a living; I eventually was able to identify my favorite analysts and then take their interpretations and use them to build my own in selecting the finding players in this way. I am approaching finance and investing very similarly. I am Like a baby suckling for the first time, trying to get as much information as I can. The biggest thing I’m trying to work on right now to calculate my surnames is to press the book from raw data to find the required information. And the 10 K some places also differ from how to calculate the PE some say it’s simple pricing to earnings, and others say it is price divided by earnings per share EPS. And I’ve also seen other formulas, but I’m ignoring those for now because I like your approach of focusing on the seven fundamental pieces of data. Maybe Dave, first on the price earnings, can answer and speak to this question first before we go further.

Dave (12:36):

Yeah, absolutely. So let’s see. I guess the price to earnings is it can be a tad bit confusing. So the way that I calculate it is I take the price of the company. So whatever the company is selling for. So let’s say the selling for $20 a share. I also look at the earnings per share, and I divide that by the price per share. And it gives me the PE because that’s the price over the earnings. So if the earnings per share are $1 and the price is $20, I have a PE of 20. Now, if it’s a challenge to figure out some of those, those, those metrics, you can go into a lot of the, a lot of the financial reports at the bottom of the income statement, for example, they will, they will calculate the, they will calculate the earnings per share for you. I frankly can’t remember the last one I saw that did not do that. I was looking at a whole bunch of them today. They all list the earnings per share there for you.

Dave (13:47):

So if that’s something that you can find, all you have to do is go to sec.gov and woke up any of the annual reports, which is a 10 K, or work at the quarterly reports, which is a 10 Q. And they will list in there, what their earnings per share are at the bottom of the income statement, it’s right below the net earnings wine. And if they do not do that, they will give you the company’s earnings, which you would divide by the shares available. So they’ll have that right below the earnings line. So if they don’t calculate it for you, they give you the information to do it for yourself. And it’s just simple division. You take the net earnings that you see at the bottom as the profit line. And you just divide that by the earnings. I’m sorry, you just divide that by the shares available, and that will give you the earnings per share. And then you would just simply divide that by the price that it’s selling for in a market, which you can find in any website app on the phone E Yahoo finance, you can even just go on CNN, and they’ll have prices there. So the finding of the price of the company is quite simple. So that’s, I guess that’s my thought on that. What are your thoughts, Andrew?

Announcer (15:04):

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Andrew (15:13):

You covered that well. Let’s move on to the last part of this question. He says, finally, in baseball, many websites organize advanced metrics into spreadsheets. They often charge for the service, but it’s a nominal fee relative to winning a title, which comes to the cash prize. Does anything like this exist for companies, even just for the raw numbers? I asked this because I also want to look chronologically at the last ten years of companies to make sure they are solid investments.

Dave (15:43):

So yes, there is a website that Andrew and I have talked about several times quickfs.net. They provide all the information that you are looking for. So they have the ratios already calculated out. It so let me back up for a second. First of all, the website is free. So to get access to 20 years of data, they have everything for free.

Dave (16:09):

So you will be able to see all the annual reports for the last ten years, as well as the trailing 12 months for the current year that you’re, that you’re looking at for the income statement, as well as the cash flow statement included in all that. They also have a sheet. So they break it up into four different parts if you will. The first page will be a listing of a bunch of metrics that they have calculated for us. So they’ll show things like the tenure meeting, again of free cash flow, or the ten-year gross margin median kind of thing. So you can get an overview of the company. Then they also break it down by income statement. They also have a balance sheet, and then they have a cash flow statement. And then the last page has a mixture of different ratios, as well as metrics that they’ve already calculated for you, and everything is all laid out for you so that you can see historical trends if you will.

Dave (17:06):

So if you want to look at the margins that the company has been operating at, you can easily see the gross margin the company has produced for the last ten years. And so it’s a, it’s a nice, easy way to see an overview of the performance over the last ten years. And I think that would fit very nicely into what you’re, what you’re talking about here. When you’re trying to analyze the company’s financial performance, it also gives you enough data that you would be able to use your calculation. So if you don’t feel comfortable with what their calculations are, or you’re not entirely sure how they’re calculating what it is that you have the ability to, to look on and see all the data for at least ten years on there you can pay extra to see 20 years data. But I, I do the ten because that works well enough for me. So I that’s, to me, the only one I know guru focus is pretty great, but they believe they only offer free five years for free. And beyond that, I think you have to pay,

Andrew (18:12):

I pay for quick Fs, and it is just fantastic. I can upload everything and pour that into my spreadsheet, manipulate it, and analyze it to my heart’s content and trust me, I do. And when you think about, if, if that’s part of your approach and you’re very data-driven, like I am, then similar to the idea of paying a small fee to win a title. I, I love the idea of paying a small fee to win in the stock market. And so quick Fs. I really can’t recommend that tool enough. It’s fantastic. If you want to use it for free, it’s fantastic. Suppose you want to pay for a premium and be able to get access to those 20 years. And it’s, I wish this thing were around when I first started, because I, I, I spent a lot of time having to dig through 10 Ks and pull one up, find three years of data input into a spreadsheet, pull another one up. I mean, it was, it was brutal now. I can’t even, I, I, it’s amazing how easy it is now with, with a website like that, and a very nice tool to have. And I think everyone, But they should use it.

Dave (19:28):

Yeah, I would agree with that. What Andrew was referring to with the data and the spreadsheets and everything I’ve seen him do it it’s impressive, folks. I’m not going to lie. I know that sec.gov allows you; they have a link in there that you can export the data to Excel spreadsheets, which is nice. But as Andrew said, you still would have to look at anywhere from two to three different annual reports. And if you wanted to do a quarterly, you’re talking a lot of downloads to finding the same level of data. So the quickFs is a nice tool. I like it because it allows me to get a really good overview of how the company performs.

Dave (20:18):

And you can see, especially right now, when we’re looking at 2020 to 2010, 2010 is kind of the year, we were kind of coming off a bad few years with the great financial crisis or the great recession, whichever you want to call it. And so you could kind of get a sense of maybe how a company had performed a little bit during that downtime. And it can give you an idea of, or maybe a comparison of how it’s doing today. It also allows you to see, let’s say the, you notice that the company has done well over the last few years, as far as revenue growth, you could go back and look over a longer period and see if that’s gradual. Or if it’s something that’s just kind of happened all at once. Or if it’s more of a one-off like this, these two years have been great, and the other eight have been not so great.

Dave (21:07):

So those are all things that you could just kind of see in an overview. And when you’re screening for companies, especially, it’s a great tool to use to help you try to narrow down some of your ideas. Let’s say that you’re looking at, you know, all, all the semiconductor companies out there, and you want to try to narrow in on which one you think is, has the best revenue growth. For example, it is really easy to skim through some of those companies and just kind of look at them as opposed to, you know, I love seeking alpha, but one of the drawbacks to them is you only have limited access to a few years unless you pay for their service. So it doesn’t provide you the same opportunity as the QuickFS does.

Andrew (21:53):

And, you know, we’ve talked in the past about how much we love to use. Finviz, if you’re a new listener, Finviz.com Is a free tool where you can screen stocks. You can say, I want a stock with a PE below 15 and the price to book below to show me a list of all of those. I used to use fin; there’s a lot, I guess, back before when I was doing a lot more price-based ratio kind of value investing. And now that my approach has changed, I’ve found I’m using quick Fs, way more. And I hardly use fenders now. And I think it’s better to do exactly. Like you’re saying, David, you like to get an instant download, maybe not instant. Maybe, maybe a couple of seconds, but save some time for the internet to catch up for those couple of seconds. We’re not quite at 5g yet, but you get that almost instant download of the picture of how the business is moving.

Andrew (22:55):

And you can see when there are dips in the numbers or where there are jumps in the numbers and where they’re doing good and where they’re staying consistent. And that gives you a way better snapshot than a random PE ratio would do or something like that. So, yeah, I, I love it. I’ve been using it more and more and more, and I think it’s, it’s essential.

Dave (23:17):

I would agree with that. And one of the things that I like about it too, with the w the idea of, of looking at longer periods, one of the things that when I’m looking at analyzing a company, one of the things that I try to do is I try to look at numbers. I try to think of questions that I want to answer. For example, if I’m looking at a company’s revenue, I noticed that maybe in two, 10, and 11, it was a little bit low, but they did great from 2012 through 2014.

Dave (23:50):

They just jumped up, and everything was great. And then it flattened out after that. And those are questions that I want to have answers to because those are ideas that you want to get around your head, get your head around, figure out what, what drove that revenue growth over that period. And why has the company not been able to sustain it? And was that a one-off event? Was there something that happened in the company that allowed them to do that? Was there something in the economy that allowed them to do that, or the environment they operate in that allowed them to do that? Those are all questions that you want to ask when you’re trying to investigate a company. We always have to think of ourselves. I like to think of myself as Sherlock Holmes, not near as smart as him, of course, but I do like to try to think of myself as an investigator, and investigators ask lots of questions.

Dave (24:47):

And when I’m reading through reports or looking at data like I am with quick Fs, one of the things that I’m always trying to do is ask questions. Using a resource like that allows you to get better data and better ideas. When you start digging into a company, whichever it may be, it gives you another than having your eyes move over the data or move over the words. It gives you a reason for searching for things. Often, when you’re searching for things, you tend to retain that information better. At least I’ve noticed it for myself. And so it it’s because you’re making connections. Sometimes when you’re just reading a balance sheet to read a balance sheet, it doesn’t stick. But when you’re looking at the balance sheet, because you’re trying to determine why their liabilities are so much higher than their assets, and what’s going on here.

Dave (25:48):

When you start really digging into it, it starts to make sense, and it sticks with you. And so those are some things that I’ve learned from trial and error and just my natural curiosity. It’s just kind of the way I’m wired. That helped me try to dig into a company when I’m looking at it. And so, again, these are all things that these are tools that you can use to help you become a better investor and anything that’s going to give you a bigger snapshot, like a quick Fs is something that you definitely, I would recommend taking advantage of when you can fin does as Andrew said is great. It’s, it’s, it’s a nice, easy tool to use for screening, especially if you’re trying to narrow down particular industries or sectors of, then it’s a great tool to give you some ideas to kind of marching orders if you will, but quick Fs as a better way to go even deeper. I think

Andrew (26:45):

Yeah, those, you hit the nail on the head on that, especially looking at the numbers and trying to figure out why it’s doing something. And if you start looking at it in that way, where it’s like, what what’s out of place, where’s Waldo. Why, why, why did something jump? And then you start investigating then as you said, that’s when you start to understand deeper what’s going on with the company, are you old enough to know who, where Waldo is? I had to reach into the deepest depths of my memories. That was a good one. That was a very good one.

Dave (27:25):

All right, folks, we’ll with our where’s Waldo. We’re going to go ahead and wrap that up for this evening. I wanted to thank everybody for sending those great questions to us and keep them coming, guys. This is a lot of fun, and hopefully, you guys are getting some great information out of all this. So again, I hope you are enjoying the new year, and thank God it’s 2021. And with that, I’m going to go ahead and sign us off. Do you guys go out there and invest with a margin of safety emphasis on the safety, have a great week, and we’ll talk to you all next week.

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