Guide to Microcap Stock Analysis – Step 1: Exclude Blacklist Companies

Now that we’ve laid some groundwork, we now need to get into a rather controversial (to some) part of my method. There are certain companies that I will not touch, I won’t even consider them. Period. My analysis method is 100% not applicable to these companies. So, if any of these are your favorite company types, feel free to hit the old Alt+F4 and move on with your life.

Without further ado, here they are!

Not Pink Current at a MINIMUM

Without getting into details on SEC regulations, just know basically one thing. If a company isn’t at a minimum “Pink Current” on, it is un-tradeable in my opinion. I’m frankly not sure how you would trade it anyways as its considered part of the dark market. But that’s a topic for another day.

Let’s break companies down into three categories:

Full SEC Reporting

First, there’s the cream of the crop: Full SEC Reporting. This means they’ve gone out and spent the money to receive a full independent audit opinion on their financial statements. This also means that the company’s financials, controls, etc. meet stringent criteria outlined by the SEC. They file quarterly and annual filings on time as well.

You can rest assured that companies that are fully SEC reporting aren’t hiding much. And if they are, it is a large fraud conspiracy.

Pink Current

Companies that are considered Pink Current are companies which alternatively report their financials and other disclosures with OTCMarkets. This means, generally, that their financials are released generally on-time, but they are not audited by an independent auditor attesting to their completeness. This just means that the company is attesting directly to the investor that what they’re presenting is correct.

These companies also must have attorney’s issue disclosure statements coinciding with their filings basically stating that what the company management is presenting is true, yada yada. What do these disclosure statements mean? Not a whole lot to be honest. There’s plenty of cases where the lawyers are colluding with the company. These lawyers are also a lot of times at a borderline “Jerry Springer commercial” level of legal prowess.

Nevertheless, I allow myself to invest in these companies. But I increase my risk profile with these companies by at least two times.

All you need to know is: financials and information are not necessarily correct, take EVERYTHING with grain of salt. Management reputation is everything with these companies.

Not Current

Basically, these companies are complete scams. They are public companies which are so inept that they can’t even manage to release financial statements on time. And these aren’t complicated companies a lot of times. You could pay Bob’s bookkeeping to put together some crappy financial statements for $15,000 in a lot of these cases and slap a Pink Current tag on these companies.

These companies are 95% scams, 4% broke, or 1% over their heads. Either way, avoid.


This is an easy one because there’s a great big warning on OTCMarkets when you bring up one of these shell companies! A shell is a company that is public, but does not have current operations. This means they are literally just sitting there doing nothing but spending money on some idiot CEO collecting a paycheck. These companies generally say they’re “seeking acquisitions that will pump up my shares*-(ehem) I mean drive shareholder value.”

At any given time, probably 75% of the companies on the OTC are scams. 99% of shell companies are scams, however. Even after they complete their stupid reverse merger with a crypto-blockchain-pot-vape-bitcoin-dogecoin-ethereum-magnesium company, it’s still a scam. I could rant for hours…just close the tab in your internet browser when you see “SHELL RISK”.


I’m sorry all of you mining speculators, I do not touch commodity companies, period. This includes:

  • Mining/minerals exploration
  • Oil and gas traders and exploration
  • Any royalty trusts for commodities
  • Crypto mining and/or trading

Why? Because these companies are like gambling on gambling. These companies, mostly, are just out there trying to find a gold mine, find huge oil reserves in Idaho, whatever. They don’t really do anything of adding value other than taking a huge risk.

Also, many of these exploration companies are complete scams. They are just run by cowboy grifters out in the west who want to get paid 200k a year to “search for the next Saudi Arabia level of oil reserves”. In reality, they buy up crappy plots of land in the middle of nowhere and hope they strike black gold. It almost never pans out, so just avoid.

A note on crypto. These companies are completely, 100%, tied to the performance of whatever cryptocurrency they’re trading/mining. Don’t even bother investing in the companies themselves. You’re just paying some doofus hundreds of thousands of dollars a year to trade a crypto portfolio for you. Just go invest in Pikachu coin or whatever yourself.

Pot, Smoke, Alternative Medicine

I know some people live and die by these, and all power to you if you do. But I avoid any of the following companies:

  • Marijuana growing, related services, etc.
  • Vaping
  • CBD
  • Any cooky alternative medicines or wellness products

Three big reasons here. One, these are disproportionately scams… trust me. Two, the market is highly saturated right now and subject to extreme government taxation. The only people getting rich off of pot are local governments. Three, and see below, I do not touch anything medicinal related. Even if much of this industry is pseudoscience (THERE I SAID IT!).

Pharmaceuticals / Biotech

Now, onto real medicine (I know I know, CBD/Marijuana has medical uses… calm down). I generally do not invest in any pharmaceuticals or biotech companies on the OTC. Why? Quite honestly, it’s the same reason as the commodities companies.

These companies are massive gambles. Essentially, they are almost all research stage companies which are trying to develop the world’s next big pharmaceuticals. Generally, these companies have noble causes. But the time between development and actually finding out if your drug is the next Humira could be 15-20 years. That, in my opinion, is an unacceptable amount of risk for me personally.

Second, I am not a medical doctor, scientist, biologist, etc. If I read the Phase 2 findings of a drug to treat HIV, I’d be better off reading a Mongolian newspaper for all of the understanding I’d get out of it. So if I can’t understand the industry/company, I don’t invest.

Once again, I know there are people who live and die by these investments. And power to you. But they are not for me, and not for this guide.

Non-US or Canadian Companies

This might rile up my foreign reader base, but I’m sorry… I do not invest in companies with significant operations outside of the US or Canada. I will also not invest in companies which have their primary listing outside of the US/Canada. In other words, they are a Mexican company with a US ADR. I only invest in US or Canadian listed common stock.

Once we start going foreign, the risk level ratchets up quite significantly in many cases. Look up something called a “country premium”. Once a company starts operating too much overseas, but is traded on US or Canadian exchange, I lose faith in my ability to accurately assess how well a company is performing.

In the OTC, you will generally find the most common foreign location a company is operating in is China. So I’ll pick on them. When I see China, I don’t see a bunch of outside investors getting rich. So for China, specifically, stay very far away. For other countries, feel free to do your due diligence, maybe you like Latin America or something. But it is not for me.

Wrap Up

As with my other steps, I’ll add to this as I think of more. But for now, this is my baseline of companies I will not touch.

Now, if you are reading this and have a stock in mind, we’ve now reached our first reflection point!

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