Investment Tips: Understanding Shell Stocks

Recently I discovered that some shares of stock I had had went up by over 500%. I couldn't believe my eyes. I had purchased some stock about 4 years ago and it had basically sat there not moving at all. The company was in a state of limbo. Then another company bought them out and because I still had my shares, up it went. It climbed on a daily basis. Needless to say, I was ecstatic.

I decided to look into this very closely and this is what I found. My stock, that I owned and which was dysfunctional, was considered a "Shell Stock." Everything was in its proper place. It just sat there for years until somebody came along and bought the company. This new company started taking in investors over about a two month period. This also helped to add to my once pitiful holdings. As a few more investors came on board it continued to rise. After it rose a bit, some investors started selling their shares to get back what they previously had invested. Not me, I figured let it ride and lets see what happens.

Basically, a Shell Stock Is a public company that no longer has any business. It retains its capital structure with the intention of a reverse merge into a non-public company with an on-going business. This merger creates a new company that is both public and generating revenues.

Why would a private company want to merge with a shell stock? The goal of the private company is to become a public company. The traditional method of a private company becoming public is very expensive. While becoming public with a merger is less inexpensive and very quicker. The Securities and Exchange Commission refers to Shell Stock as a "Blank Check Company".

There are two types of Shell Stock. Reporting and Non-Reporting. Reporting reports quarterly to the SEC. They are audited annually. Non-Reporting forgo any reporting at all to the SEC. Keep this in mind. The SEC will always inform you about the doings of a Reporting Stock. On a Non-Reporting Stock you can only go by the amount of information that is given by the company.

Most investors buy Shell Stock when there are rumors of a merger. They become impatient when the merger doesn't happen. They sell and take a loss. So the strategy is simple. You buy cheap. Forget about them and continue on with your routine business, waiting for a reverse merger. Sometimes they can produce very well for the investor.

Here is an example. Lets say you invest $1000 in a Shell Stock at the cost of .0312 per share. 6 weeks later is traded for $50 a share. You now have a total of $1,600,000. How often does this happen you ask? Not much but it does happen. One company that did recently was CKXE. Elvis Presley and American Idol merged. Stock went from 10 cents a share to $11.20 over a two day period.

So where does one look for "Shell Stock?" The best place is the Internet. Take time and research and study. I can't express that enough. One web site that offers information is the site shellstockreview.com. They explain it very well. Another site would be the Motley Fool. Most sites will not tell you what to buy. However, they will give you good insight into the process.

Message Boards and Forums are great, too. You can discuss with many others and get some good ideas of what to do and not to do. Keep one thing in mind though. No venture is a guarantee in success. It is like going to a casino. You might hit a jackpot and you might not. Once again do your homework before you make any investment of any type. Good Luck.