Talking Float

Q Is a company’s “float” the same as its outstanding shares? — B.B., Escondido, California A Nope. The term “shares outstanding” refers to all shares of stock that a company has issued. Very often, some are “restricted” — for example, if they’re held by insiders (such as founders, executives and /or employees) who cannot sell until the shares vest. Those folks typically hold on to their shares for a long time. The remaining shares are available for trading, are owned by the public, and change hands more often. They’re the float.

Imagine Scruffy’s Chicken Shack (ticker BUKBUK), with 100 million shares outstanding and insiders owning 30%. That leaves 70%, or 70 million shares, as the float. It’s good to check out a company’s float, because if it’s small (“thinly traded”), the stock can be volatile. With a limited number of shares, even moderate buying (or selling) activity can push the price up (or down) sharply.

*** Q What do you think about buying stocks that are near their 52-week lows and selling ones near their highs? — S.C., St. Augustine, Florida A Fallen stocks are certainly worth investigating, as their problems may be temporary, leaving them likely to recover and rise in value. But they also may be facing insurmountable challenges that will sink them further. You need to take a close look.

As for selling, think twice before selling a stock near its 52-week high — the best stocks will keep hitting new highs over decades, rewarding patient investors handsomely. If you sell a stock after it doubles in value, you’ll miss out if it later triples or quadruples. Rather than focusing on a stock’s highs and lows, try to figure out where the company is going in the long term.