Base price and shares
Here is a video that I made that explains base price and shares. Below the video, I have included the transcript of the video. Enjoy!
Video Transcript
Like earlier mentioned, when you are buying a stock, you are becoming a part owner of the company. So first of all, you must understand that all stocks have a base price. There are some stocks that cost pennies, while some like Google can cost north of 1000 dollars. This is why you will be limited to buying only certain stocks based on your budget. Okay, now what you must also understand is that you are normally not just gonna buy one piece or share of the company. One little piece of a stock you are investing in is called a share. Now let’s go over an example so you can get a better sense of what I mean.
Okay let’s say there is Company A that is trading for a base price of 15 dollars. So that means if you invest 15 dollars into the stock, you will get one very, very small piece or one share of the company. Once you do this you are regarded as a shareholder. Get it, because you are owning shares. A company usually has many shares available for purchase. This is why going out to the market and buying very few shares is almost pointless sometimes because you will barely make or lose money. However, always remember that you shouldn’t be buying too many shares either, or else you will have too much risk associated with the company. This is why moderation is very important, and you should plan this based on your budget and your financial situation.
Going back to Company A let’s say that there are 10 000 shares that are available to the public for trading. Because we know that one share will get us nowhere let’s come up with a more realistic number. Let’s say we buy 100 shares of this Company A. The total price we would pay would be 100 shares times 15 dollars which we can recall is the share price which would be a grand total of 1500 dollars for 100 shares. Now we have to also think, is the stake that we have in Company A big enough where we will actually earn money if it goes up. So to do this, all we have to do is just divide the amount of shares you plan to purchase, which right now is 100 by the total amount of shares within the company, which in this case is 10 000. Once you do that you come up with a percentage, and that will indicate how much of the company you own. We come up with 1%, and that is a good stake to have. Yes, it’s minuscule, but think of it as getting 1% of the millions of dollars the company you invest in may earn.
Another crucial thing to do, is not a judge a stock by it’s stock price. Stock price by the way, is just another way of saying the base price of the stock, which you can recall in Company A was 15 dollars. Just because a stock price is high doesn’t mean that in general it isn’t expensive. It could be also vice versa: A stock with a high base price might not be expensive in general. When you consider buying a stock, you should think of the percentage of the stock that you will own, and we talked about how to calculate that earlier. Think of it this way, let’s say that Stock A has one share of the company worth at 1.00 dollar. However, let’s say there are a million shares available for people to buy. If you buy 1 share that means you are buying one millionth of the company. You may also have Stock B on the other hand that is trading for 10 dollars, but there are only 50 000 shares. You may believe that Stock B is more expensive to buy, but really think of it this way. Would you rather have 1/50 000 of a stock or one millionth, though again we factor in the different base price. When you think that way, Stock B, is looked at in much better light, and that is because one share of their stock is worth more than one share of Stock A.
This lesson should have taught you the basics to shares and base price, don't worry if you can't exactly grasp all of the points right now, because it will all come together later as we move into further lessons!
Okay let’s say there is Company A that is trading for a base price of 15 dollars. So that means if you invest 15 dollars into the stock, you will get one very, very small piece or one share of the company. Once you do this you are regarded as a shareholder. Get it, because you are owning shares. A company usually has many shares available for purchase. This is why going out to the market and buying very few shares is almost pointless sometimes because you will barely make or lose money. However, always remember that you shouldn’t be buying too many shares either, or else you will have too much risk associated with the company. This is why moderation is very important, and you should plan this based on your budget and your financial situation.
Going back to Company A let’s say that there are 10 000 shares that are available to the public for trading. Because we know that one share will get us nowhere let’s come up with a more realistic number. Let’s say we buy 100 shares of this Company A. The total price we would pay would be 100 shares times 15 dollars which we can recall is the share price which would be a grand total of 1500 dollars for 100 shares. Now we have to also think, is the stake that we have in Company A big enough where we will actually earn money if it goes up. So to do this, all we have to do is just divide the amount of shares you plan to purchase, which right now is 100 by the total amount of shares within the company, which in this case is 10 000. Once you do that you come up with a percentage, and that will indicate how much of the company you own. We come up with 1%, and that is a good stake to have. Yes, it’s minuscule, but think of it as getting 1% of the millions of dollars the company you invest in may earn.
Another crucial thing to do, is not a judge a stock by it’s stock price. Stock price by the way, is just another way of saying the base price of the stock, which you can recall in Company A was 15 dollars. Just because a stock price is high doesn’t mean that in general it isn’t expensive. It could be also vice versa: A stock with a high base price might not be expensive in general. When you consider buying a stock, you should think of the percentage of the stock that you will own, and we talked about how to calculate that earlier. Think of it this way, let’s say that Stock A has one share of the company worth at 1.00 dollar. However, let’s say there are a million shares available for people to buy. If you buy 1 share that means you are buying one millionth of the company. You may also have Stock B on the other hand that is trading for 10 dollars, but there are only 50 000 shares. You may believe that Stock B is more expensive to buy, but really think of it this way. Would you rather have 1/50 000 of a stock or one millionth, though again we factor in the different base price. When you think that way, Stock B, is looked at in much better light, and that is because one share of their stock is worth more than one share of Stock A.
This lesson should have taught you the basics to shares and base price, don't worry if you can't exactly grasp all of the points right now, because it will all come together later as we move into further lessons!