Over the Counter Stocks

IF You are willing to buy stocks that are risky but may offer some outsized rewards, you might want to shop on the over the counter market. Shares on the OTC market tend to be those of companies that is too small and too new to be listed on the major exchanges. They also have fewer shares, so even a small amount of buying or selling can cause sharp moves, up or down.

Thousands of OTC issues are listed on what's called NASDAQ, which stands for the National Association of Securities Dealers Automated Quotations system. That's a computer linked network of about 500 competing broker dealers who electronically post the prices at which each of them will buy or sell certain OTC stocks. The NASDAQ listings are loaded with small, glamour less companies, some of which are selling for a bargain price of only 10 times earnings or even less. They may be undervalued simply because few people have bothered to look at their financial statements.

If you want to invest in this market, swear off hot tips. Think instead about small companies that have caught your eye say, by selling a product or service you admire or by expanding in a market you understand. Candidates might include new firms that are major competitors in emergent fields and seasoned concerns that are prospering in otherwise troubled sectors, such as computers or savings banking.

Also popular are mutual funds that specialize in over the counter stocks. One of the best is Fidelity's OTC Portfolio (82 Devonshire Street, Boston, Massachusetts 02109; 617 523 1919, or 800 5446666 outside the state). It got started only in December 1984, but as of mid 1989 it had gained nearly 175%.