Understanding Stocks

FUN THINGS YOU CAN DO (WITH STOCKS) 43
forced to buy back the shares early, losing over 100 points, because the
losses grew so large. A few years later, after the market came to its
senses, Yahoo! dropped to less than $20 a share (adjusted for splits), but
it was too late for my acquaintances.
Personally, I find it very enlightening to listen to short sellers. Too
often, investors delude themselves into thinking that the market will
always go higher. Professional short sellers are good at poking holes in
the “too-good-to-be-true” proclamations of market bulls. In my opinion,
you should listen to both sides of an argument, but in the end you
should do what you think makes the most sense.
Other Ways to Classify Stocks
Outstanding Shares
As you remember, corporations issue shares of stock, which are made
available to investors through a stock exchange. The total number of
shares that a corporation has issued is called its outstanding shares. (I
agree it’s not the most exciting name.) In a real-life example, you might
ask someone in the corporation, “What is the number of outstanding
shares?”
To save yourself time, you could also look up the number of outstanding
shares on the Internet—for example, at Yahoo! Finance. Keep
in mind that the bigger the corporation, the more outstanding shares
there are. Because the stock market goes up and down based on supply
and demand, a corporation doesn’t want to issue too many shares unless
it is pretty sure that people will scoop them up.
Let’s say that over a 10-year period, Microsoft issues a total of 1 billion
shares to the public and to corporate insiders; therefore, the number
of outstanding shares for Microsoft is 1 billion shares. (It is up to the
board of directors of Microsoft to decide how many shares it wants to
issue.) Obviously, the board keeps millions of shares of the stock for the
company’s officers and employees. Because they are company insiders,
they got the shares at extremely low prices, perhaps for a few dollars a
share. (This is one of the reasons that so many people who worked at
Microsoft became millionaires.) In addition, the board of directors also