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Investors Returning To Micro-Cap Stocks

When the economy began its long and painful collapse in 2008, it took a flood of over-the-counter stocks with it. It's not surprising, considering that investment money, the life-blood of developing companies, was one of the first things to evaporate. Without plentiful sources of funding, OTC securities, always viewed as more risky investments, were left high and dry, and many companies simply disappeared.

At long last, there is quantitative evidence to indicate that investor sentiment is changing. After bottoming out in 2008 and 2009, the total dollar volume of all OTCBB shares traded has been on the rise, with annual volume up roughly 25% since 2009, and 2012 is on track to continue the rise. Numbers are a long way from the heady days before the crash, but the trend is clear.

The exact reason for the turnaround is less easy to pin down. Investor psychology is a complex thing, and many factors feed the market. The easy answer is that there's a growing optimism that the Great Recession is at last fading, and that OTC securities previously considered too risky are now seen as cheap and attractive opportunities. Nobody wants to be the last person standing on the platform as the train pulls out of the station.

But there are other things that have happened over the last few years to encourage investor movement. OTC Markets has taken steps to improve transparency, and the SEC has tightened up on regulations, providing an additional sense of security. In May, SEC regulators shut down trading in nearly 400 microcap stocks, an effort to prevent shell company fraud. Shell companies can be used to lure unsuspecting investors who think any company with a ticker symbol must be legitimate. The move was to stop shares of shell companies from being accumulated by fraudsters who could use the shares later to perpetrate pump-and-dump schemes.

For details on changes in investor activity, see

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