I have some questions about shares/stocks?

[Benjamin]

Question One) Why do companies have different volumes of shares? For example:
Tesco PLC Has 11,967,898 Shares.
Facebook Has 18,795,260.
Ford Has 14,243,505.

Question Two) Because they have different volumes, I assume more shares can be created? Am I right?

Question Three) If more shares can be created, when they are created, then surely the price of existing shares would go down?

Question Four) If the price of the shares go down when more are created, this would surely be unfair on current shareholders, as their share prices would go down also, meaning they would lose money.

Question Five) Say you bought 1000 shares in Facebook which would be 21.66 x 1000 = 21,660.
The price per share went up by $1 in one day. Your shares would now be worth 22.66 x 1000 = 22,660 Meaning you have made a $1000 profit in one day. However you have invested $21,660 to make $1000? This to me seems like a pretty poor investment to me because there is also the possibility that they can go down. Investing $1000 to make $1000 would be a much more beneficial investment (In terms of other investments, I'm not talking about shares).

Again, one tesco share is $329.10 to buy 1000, it would cost 1000 x 329.10 = $329,100
If over one day one share went up by $1, they would then be worth $330.10 each overall equalling $330,100 making you $1000. Again to me this seems like a worthless investment, investing over $300,000 dollars to make $1,000? I may be missing something like, "Usually people invest over long periods of time like a month, hoping they go up by $10-$100 each making it a worthy investment." However I was always under the illusion that people would buy one day and sell the next. Perhaps I am missing something.

Thanks for any help, I am only 15 but I'm trying to learn the basics. Thanks again.

[Steve D]

1) For many companies, it is a backwards calculation - they determine how much they want to raise in dollars, figure out what the market will bear for a share of stock and work backwards to determine how many shares to issue (this is highly simplified). Thus, the different numbers of shares.

2, 3, and 4) Volume, current shares and shares that can be created are all independent. Yes, companies can create additional shares - in fact many have by doing simple stock splits (i.e, a 2 for 1 in which every current shareholder receives one share for every one they own - this leaves everyone equal, but halves the price making it more affordable). However, companies have been known to issue additional shares that are not part of a split and if they sell them on the open market or via other means, yes, the shares go down in price and current shareholders lose.

5) You have the math correct, however, making $1,000 on a $21,000 investment is a VERY VERY VERY good investment - consider that even a junk bond at its highest made 20% over 1 year - that equates to a $4,000 profit for 1 full year with an exceptionally high level of risk (these bonds were called junk for a reason). More than likely, the average investor would expect to a return closer to the historical average or about 8% a year, which on your $21,000 investment would be about $1,600. The folks who trade in and out of stock trade on pennies and in large numbers, holding many positions and acting when the stock appreciates even 2 to 3 cents (smaller investors would have their profits eaten up by the commissions on trading if they tried this) - the day traders also use margin to leverage their investments...and yes, they can lose big time also. For the average investor, the look-out period should be years, hoping for a 7 to 9 percent return which would be compounded and yield a nice bank roll after a sufficient time.

[frozen555]

ANSWER 1:

There are millions of investors, and they buy and sell stocks during the day. If an investor decides to buy 1000 shares of Ford, then the volume is increased by 1000. By the end of the day, it might be 14,243,505 or any other number. The VOLUME tells us how many shares were traded during the day.

By itself, the daily volume number is not very significant. But if you know the total number of shares or the average daily volume, then you can figure out something. For example, if XYZ company has 3000 million shares outstanding (That is the total number of shares), then a daily volume of 300 million shares would be significantly large. This means 10% of the company shares changed hands in one day. OR if a stock has an average daily volume of 5 million shares, then a single daily volume of just 50,000 shares would be unusually low.

ANSWER 2:

No, you are confusing the VOLUME with OUTSTANDING SHARES.
DAILY VOLUME = the number of shares traded during a particular day.
OUTSTANDING SHARES = the total number of shares that the company has.

The number of shares that can be created does not depend on how many shares already exist. One company has 150 million shares outstanding, while another has 5 billion. There's no limit. A company can create more shares when it wants to and as many as it wants to.

ANSWER 3:

CORRECT.

ANSWER 4:

Look, they usually tell this in the news. The company shareholders already
know when more shares will be created, so it's not a big surprise for them.
They know, and if someone says, "This company is a piece of crap. All they do
is create more shares all the time, and I am tired of this stock. It keeps going
down down down"
Guess what! If an investor doesn't want it anymore, he can sell it and that way
he won't have to endure the next wave of devaluation. Sure, the price goes
down 1-2% when the new shares are created, but it's not that much.
I don't think it's unfair. And besides, when you buy a stock, you take a risk.
If you don't want the risk, don't buy the stock. It's that simple!

ANSWER 5:

Yes, it can go down, and it does go down. And if you make A LOT of trades,
which is like flipping a coin, then you will sometimes lose money, and
sometimes you will make money.

Yes, from 21.60 to 22.60 is 4.6%. So, if you had invested only $100, then it
would become $104.60. That's $4 profit on $100 investment. Not bad for one day.
If you could do that everyday, by the end of the year you would have more than
$1000. First year you would turn $100 into $1000, then next year you would turn
the $1000 into $10,000 and so forth. In less than 5 years, you would be a millionaire!

There are a couple of problems. First, stock trading doesn't work like that.
You will not only make money but lose money. And your profits and losses
are never the same. You may make $500 and lose $2000. You draw the line
where enough is enough. If a stock starts to go down and you lose $10, is
that too much? Do now get out or wait until it goes down $50? or $80?
OR if a stock goes up $100, then do you sell? or do you wait for it to go up $200?
IF it does go up to $200, do you sell, or do you wait for it to go up to $300?
Trading stocks means you have to make decisions ALL THE TIME.
And you can screw up at any moment. It's much easier to lose money
than to make money.

The second problem is commissions. To buy or sell stock, you have to pay a
commission. Commission is $7 at Scottrade or $4.50 at Zecco. Now, if you make
$4.60 a day, then you are losing money, because you have to pay a commission
when you buy and when you sell. So, you pay $7 when you buy and pay another
$7 when you sell your shares. That's $14 for simply buying and selling a stock!
This means you better make at least $14 on your investments, otherwise you'll
be losing money. So, making $4 a day is not enough, because if you make only
$4 a day and pay $14 for commissions, then you're not really making any money.
You're losing money. You're losing $10 a day.

> Investing $1000 to make $1000 would be a much more beneficial investment
> (In terms of other investments, I'm not talking about shares).

Yes, turning $1000 into $2000 would be a 100% profit. And some stocks can
produce that kind of return, but they are also more risky. With more profit potential
comes more risk!