Big Is Not Always Better

Tags: Stocks, Stock Market Guide, Stock tips, Stock Techiniques, How to Make Money In Stocks

The price of a common stock with 300 million shares outstanding is hard to budge up because of the large supply of stock available. A tremendous volume of buying (demand) is needed to create a rousing price increase.

On the other hand, if a company has only 2 or 3 million shares of common stock outstanding, a reasonable amount of buying can push the stock up rapidly because of the small available supply. If you are choosing between two stocks to buy, one with 10 million shares outstanding and the other with 60 million, the smaller one will usually be the rip-roaring performer if other factors are equal.

The total number of shares of common stock outstanding in a company's capital structure represents the potential amount of stock available for purchase.

The stock's "floating supply" is also frequently considered by market professionals. It measures the number of common shares left for possible purchase after subtracting the quantity of stock that is closely held by company management. Stocks that have a large percentage of ownership by top management are generally your best prospects.

There is another fundamental reason, besides supply and demand, that companies with large capitalizations (number of shares outstanding) as a rule produce dreadful price appreciation results in the stock market. The companies themselves are simply too big and sluggish.