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Dilution

Lately we've seen examples of stocks announcing they are seeking approval to release new shares.  Typically those announcements are met with a hasty retreat in the price of the stock.  It all comes down to perception and the market professionals know that the herd will react negatively to this news so; they use the opportunity to take profits and then buy back in at a reduced price.  

Dilution is a term we see discussed when a company wants to issue new shares.  Whenever the herd hears that a company wants to dilute their shares they tend to react negatively and the stock price falls.  Don't be mistaken there is such a thing as truly bad dilution.  Companies that perpetually issue shares yet never seem to have enough cash on hand to handle their needs are companies that you want to avoid.  We try to teach people to avoid all the hype anger and frustration that are constantly being shouted at traders from all directions.  Keep your mind clear and learn to read beyond the headlines.  

Dilution can be a good thing if the company is growing and is using the issuance of stock to further that growth.  Every company needs cash to survive and to grow.  Learning to recognize that and understand it will prevent you from being herded.  You'll learn to see that dilution when done properly can actually be the fuel that turns a low priced stock into a rocket ship.





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