Over-the-counter stocks first came into favor in the latter part of the last century. This article from the the 70s has some interesting information that is still timely today.
Because of the growing scarcity of attractive listed stocks, an increasing number of professionals are turning to over-the-counter stocks in search for better values. They are potentially better values because they have been less publicized and therefore less exploited.
The over-the-counter market is the least understood, not only for the average investor, but also for the professionals who have taken a skeptical attitude toward it.
This situation, however, is changing rapidly. The investment companies, for instance, are taking a keener interest than ever before in over-the-counter stocks. While five years ago their unlisted holdings amounted to less than $100 million, exclusive of bank and insurance stocks, their holdings in the 50 Vickers’ over-the-counter favorites alone (the top 50 unlisted stocks held by funds) added up to $664.5 million (Sept. 1, 1961, values). That's exclusive of what the funds own in hundreds of other unlisted concerns.
Over-the-counter stocks now account for about 10 percent of the estimated $25 billion assets held by 250 mutual funds and 75 closed-end trusts as of Sept. 1, 1961. This represents a substantial growth from the $1.5 billion recorded at the start of the year.
Nothing is more misleading than to classify over-the-counter stocks categorically as speculative. The top unlisted 50 industrials as compiled by the Vickers Associates, for instance, are comparable in quality to the top listed 50 industrials.
Among the unlisted 50, we have Eli Lilly, Miles Laboratories (now listed on the New York Stock Exchange), G. D. Searle, and William H. Rorer in the drug category; Avon Products, Shulton, and Beauty Counselors in cosmetics; Grolier, R. R. Donnelley & Sons, and Western Publishing in publishing and printing; Dun & Bradstreet, A. C. Nielsen, and American Express in commercial and industrial services; High Voltage Engineering, Sanders Associates, and Control Data in electronics and computers. Others include Papercraft, American Greetings, Jim Walter, Diebold, Metromedia, Holiday Inns of America, Thrifty Drug Stores, and California Financial. And, of course, also Weyerhaeuser, the world's largest lumber company; Bank of America, the world's largest bank; and Time, Inc., America's leading magazine publisher.
These and many other unlisted stocks are just as good as any quality listed stocks. Generally speaking, off-board stocks are available at more realistic price levels than their more prominent listed counterparts for the simple reason that the latter are more in the market spotlight and, therefore, tend to be more expensive in the face of ever increasing investment money chasing a dwindling supply of sound listed issues.
While the over-the-counter market is indeed the trading arena for most of the untested and speculative issues, it also has some of the most stable investment media almost exclusively traded there, including government bonds and public-held insurance company stocks.
If you had confined your investments in stocks to listed securities, you would have missed the tremendous profit opportunities, for instance, in life insurance company stocks which have showed, in 1961, an average price appreciation of between 75 and 100 percent.
Other quality equities purchasable only at the over-the-counter market are the shares of 14,000 operating banks, most fire insurance companies and all mutual funds.
To have stayed away from the off-board mart was to have missed all the excitement going on there. Franklin National Bank, for instance, rose to the 60 level in middle November 1961 from 45 less than three months before. Security National Bank, for another instance, shot up from around 20 to 40 in a period of five weeks covering October and November of 1961.
While listed stocks always have their champions, the diversified investor will look to over-the-counter options as a viable opportunity too. Invest wisely, do your homework, and you just may find your own diamond in the rough.