The Financial Industry Regulatory Authority (FINRA) has issued alert advising investors to check the details of a stock before they buy.
In Stock Up on Information Before Buying Stock issued Friday, FINRA says that with over 20,000 companies trading on exchanges and over-the-counter “there is ample room for confusion”. And so, the bulletin provides a series of practical steps investors should take before investing, including not only thoroughly researching a company before buying stock in it, but also finding out where the stock trades, making sure the symbol is correct, and ensuring that they understand the initial public offering process.
“One of the most important consumer tips is know what you are buying. This maxim certainly applies to investing in stocks,” it says.
The alert also highlights the fact that not all financial information is independently audited, and recommends that investors verify any information with a company’s public filings. It also points out the difference between exchange-traded securities that are subject to listing standards, and OTC stocks that are not.
Moreover, it cautions investors to ensure they are buying the intended security, and to be aware of the risk of symbol confusion. FINRA also notes that it has warned in a previous alert that the securities of a company in bankruptcy may continue to trade after it files for bankruptcy protection.
Finally, FINRA cautions investors to be extremely wary of pre-IPO speculation. “It is always risky, and can be illegal,” it says.
“Before buying an individual stock, investors should fully understand what they are buying in order to avoid potentially costly mix-ups or mistakes,” said Gerri Walsh, FINRA’s senior vice president for investor education.