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#536 - Company Share Price Basics: Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to go through some company share price basics. If you’re just getting started with stock trading or starting to get into options trading...

#536 - Company Share Price Basics: Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to go through some company share price basics. If you’re just getting started with stock trading or starting to get into options trading...

A partire dalThe "Daily Call" From Option Alpha


#536 - Company Share Price Basics: Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to go through some company share price basics. If you’re just getting started with stock trading or starting to get into options trading...

A partire dalThe "Daily Call" From Option Alpha

valutazioni:
Lunghezza:
6 minuti
Pubblicato:
Mar 12, 2019
Formato:
Episodio podcast

Descrizione

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to go through some company share price basics. If you’re just getting started with stock trading or starting to get into options trading or as many people probably in this space have been doing since they were little kids, you've obviously been watching share prices of companies. Apple is trading for X, Amazon is trading for Y, GE is trading for Z, whatever. It doesn’t matter what the company is, but we all know intrinsically that there's this company share price that’s attached to each company or ticker symbol as they trade and the problem is that most people don't really understand how this number is effectively derived and they get fooled by this absolute share price and they don't ever adjust necessarily for outstanding shares or shares that have been issued by the company and this can sometimes lead people into making decisions wrongly potentially just based on the absolute share price of a company. To kind of prove this point, here's an example I want to use just on today's podcast. If I told you to quickly make a decision as to which company you would buy, stock A which is trading for $2 or stock B which is trading for $5 and you had to make a decision right now right here to buy the cheaper company, so buy the company that is worth less money, many people would immediately default to buying stock A which is worth $2 versus stock B which is worth $5, but that may be the wrong decision. The right answer to that question would be is that you have to figure out how many shares are outstanding, what the true value of the company is because the absolute share price has nothing to do necessarily if we can't adjust that share price based on the number of shares outstanding or the float that the company has issued. Now, if I told you and gave you a little bit more information and I said, “Okay. Stock A which is trading for $2, they’ve only issued 100 shares of stock.” Basically, the equity value of the entire company…”And this is a really exaggerated extreme answer because it's only 100 shares of stock. But the entire value of company A is only $200, $2 per share, 100 shares of stock. In this case, you could say that basically, company A is worth $200. Now, in this case, what if I said, “Well, company B is trading at $5 per share, but has only issued 10 shares of stock.” In this case, company B, although it's a higher per-share price, because they’ve only issued 10 shares of stock, technically is the least valuable company. You're buying company B at a potentially cheaper price than company A because you're buying a company that has less float in shares, they only have issued 10 shares of stock, but the shares are actually priced at $5 versus $2. I’m assuming at this point that both companies do the same thing, they’re in the same industry, they’re generating about the same money. Company B actually ends up being a better investment because you buy the same stream of revenue for a much more attractive value once you factor in the shares. Again, this is where people get fooled all the time and I see this actually time and time again even with family members. I have this conversation all the time with seemingly relatives and they always ask my opinion which I always give them the disclaimer that I have no idea where a company is going to go anyway, but they still want to know. And so, we gossip about stock and they say, “Oh. Well, XYZ is trading for $15, so that's really cheap.” And I always reply back and say, “Well, it doesn’t really matter because $15 could be really cheap or it could be really expensive. It depends on how many shares they’ve issued.” The great example of this is Berkshire Hathaway which has never split their stock and so, they’re trading per-share, upwards of $150,000, $160,000 per share. Now, does that mean that Berkshire Hathaway is overpriced? No. Potentially, it could be a really cheap deal at th
Pubblicato:
Mar 12, 2019
Formato:
Episodio podcast