Is it Worth Trading Foreign Pink Sheet Stocks?

Includes: ACKDF, BRSAY
by: Roger Nusbaum

A reader asked me to touch on the risks associated with buying foreign stocks that trade on the pink sheets.

Foreign ordinaries and ADRs can both trade on the pinks. You know it is an ordinary if the ticker ends in F and you know it is an ADR if the ticker ends in Y.

So here is a screen shot from Yahoo Finance (YHOO) for the pink sheet traded ordinary shares of Auckland International Airport (OTCPK:ACKDF). This is pretty typical of the how little information you might find. What can anyone do with that? Well it does verify the symbol anyway.

Anyone interested in this stock would need to do a little detective work. One source that might provide more info, but not always, is Today there is no extra info for ACKDF.

For quote info, you could look up the symbol for the stock on the local market, which in this example is AIA.NZ and Yahoo usually has that. AIA.NZ closed overnight with an offer of NZ$2.18. Multiplied by Yahoo's quote for NZDUSD=X of 0.7778 this works out to $1.68 in US dollars as a possible price to get an execution depending on your broker.

Realistically $1.68 won't get it done. In most instances you need to pad your limit order by some amount. It seems that the amount needed for padding varies with no concrete guideline.

It is also possible your brokerage firm can get you a quote that can get an order done. I would add that Schwab charges an astronomical fee/commission to retail investors to get this sort of business done.

So the risks, and I'll say issues is a better word, that should come through from above include lack of good quote information, unfriendly market dynamics, the obvious need for a limit order and very little chance of a short term trade (for those who are inclined this way). Additionally, most company websites have information available which you would expect to find on the website for a US company, so studying the fundamental story is not much different. However, some companies don't have much information on their sites, as was the case with Climate Exchange (small personal holding).

Above, I outlined the currency work that needs to be done with ordinary shares, the ones whose tickers end in F, but with ADRs, the ones ending in Y, do not require currency conversion. This whole thing clearly is a step up in time commitment and complexity. Hopefully no one took my comments as otherwise, but for people inclined to spend the time needed, or even a little more time than they currently do because one stock is compelling, then why not?

I just turned in an article to TSCM about the Portugal ETF. One of the names in the fund is Brisa (OTC:BRSAY), which is a toll road. I don't think it is a monumental stretch that a portfolio with a blend of ETFs and a few stocks could make room and time for one stock in a theme not easily isolated otherwise. This is not right for everyone but neither is it wrong for everyone. To be clear, ACKDF and BRSAY are just examples, I do not own either one nor am I a buyer anytime soon, if ever.