Influential Over The Counter Markets

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Foreign securities are the most frequently over the counter traded markets, and a growing number of experienced investors are buying them in search for profit opportunities. This historical piece offers some good insight into the past performance of some of this market segment.

Over the counter buying is largely of institutional origin for participating in the rapid growth of the European Common Market. European stocks are attractive in many ways. First, the profit squeeze on European firms from rising production costs is not as acute as in the United States. Second, tax treatment in Europe is less severe. Third, even after the recent market rise of European stocks, they still sell much cheaper than their American counterparts price-earnings-ratio-wise. And, finally, the purchase of European stocks should serve to diversify the portfolios of United States investment companies geographically and industrially.

Among the more popular European stocks are West German bank shares, including the Dresdener Bank, the Deutsche Bank and the Commerzbank.

West German bank shares are attractive because they are engaged in investment banking and securities brokerage in addition to doing the normal loan business at high interest rates. Their investment portfolios hold large blocks of common stock, much of which is carried at book at far less than its actual worth.

The growth rates of most of the well-favored European stocks are so great that shareholders can generally expect to be offered every year or so rights of substantial market value for new issue subscription.

Altogether, the over the counter market is the shopping place for some 40,000 diverse equities, compared with only about 3,200 listed issues on major exchanges. Of the 40,000, between 8,000 and 10,000 are quoted and traded every day.

As the world's largest trading arena for securities, the over the counter market offers a great variety of issues that cover virtually the entire range of investment interests. Moreover, it is being augmented by a continuous flow of new issues at the rate of 1,000 a year. Here, experienced investors look for "beginning" stocks or stocks in emerging industries.

An entirely new investment vehicle has sprung up within the last few years in the form of Small Business Investment Companies. Some 360 of them are already in business, and many more are on the way. All of them are traded over the counter.

It is well known that all new issues start trading over the counter immediately after their first offering. To have stayed away from the off-board mart was to have missed all the excitement and exciting issues that have marked the new issue market in recent years.

The new issue market has its ups and downs. There will always be a "Polaroid," "Technical Operation," "Itek" or "High Voltage Engineering," in the making, most probably in the obscure off-board mart, temporarily hidden from public view but ready to explode with all the force and excitement of a winner.

The over the counter market is all things to all kinds of people; it is also a market of extremes, from the government municipal and triple A corporate bonds at one end to the most speculative stocks at the other. Its price ranges go all way from the mining stocks, often selling in pennies, to such ultra blue chips as Superior Oils, commanding $1,300 a share.

Despite its vast profit potential, the over-the-counter mart has been completely ignored by many investors. Why? Because it's something of a mystery to them. They have got used to the practice of a listed or auction market, where transactions are made at central locations, with tickers recording every purchase and sale. They are suspicious of a market that operates without a marketplace and have no confidence in a market where traders bargain security prices by telephone or teletype instead of negotiating on the floor of an exchange.

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