vania-janet/multiturn-rag-retrieval-data huggingface dataset:
Theoretically, when a company issues more shares, it does not affect the value of your shares.  The reason is that when a company issues and sells more shares, the proceeds from the sale of those shares goes back into the company. Using your example, you have 10 out of 100 shares of the company, for a 10% stake.  Let's say that the shares are valued at $1,000 each, meaning that the market value of the company is $100,000, and your stake is worth $10,000. Now the company issues 100 more shares at $1,000 each.  The company receives $100,000 from new investors, and now the company is worth $200,000.  Your stake is now only 5% of the company, but it is still worth $10,000. The authorized share capital is the amount of shares that a company has already planned on selling.  When you buy stock in a company, you can look up how many shares exist, so you know what your percent stake in the company is.  When a company wants to sell more shares, this is called an increase of authorized share capital.  In order to do this, the company generally needs the approval of a majority of the existing shareholders.
"I think you hit the nail on the head.  If the stock price is sky high, all else being equal (again this is put off as an ordinary assumption, but is a pretty damn big one... as you can't even just look at PE to help, as there might be a high growth rate etc/other circumstances... but I digress), you would be better off issuing stock.  As the stock price goes lower, (aebe) it becomes less attractive to issue equity.  Even if you have a case in 2, it might make sense to go for 1, and then potentially issue debt in the future to fund a buyback (when the stock is lower).  But this is all dependant on what the company thinks it will be willing to do.  One of the major considerations would be the tax situation, as equity is ""after tax"", and debt is ""before tax"", as they say."
"You were probably not given stock, but stock options.  Those options have a strike price and you can do some more research on them if needed.  Lets assume that you were given 5K shares at a strike of 20, and they vest 20% per year.  Assume the same thing in your second year and you are going to leave in year three. You would have 2K shares from your year 1 grant, and 1K shares from your year 2 grant, so 2K total. If you leave no more shares would be vested. If you leave you have one of two options: To complicate matters subsequent grants may have different strike prices, so perhaps year two grant is at $22 per share.  However, in pre-public companies that is not likely the case. For a bit of history, I worked at a pre-ipo company and we were all going to get rich.  I was given generous grants, but decided to leave.  I really wanted to buy my options but simply didn't have the money.  Shortly after I left the company folded, so the money would have been thrown away anyway.  When a company is private the motivate their employees with tales of riches, but they are not required to disclose financial data.  This company did a very good job of convincing employees that all was fine, when it wasn't. Also I received options in a publicly traded company.  Myself and other employees received options that were ""underwater"" or worth far less than the strike price.  You could let them expire so one did not owe money, but they were worthless. Hopefully that answers your question."
Companies already have to protect themselves against employees trading the company's shares with insider information. They typically do that in a number of ways: Taken together, this tends to mostly mitigate the risk of employees trading with insider information, though it's probably not perfect. In practice, the company itself's knowledge of insider information is the same as that of its senior management. So it makes sense for a company to be allowed to trade under the same conditions as its senior management. From https://corpgov.law.harvard.edu/2013/03/14/questions-surrounding-share-repurchases/ : If the company is repurchasing outside of a Rule 10b5-1 trading plan,   it should limit its purchases to open window periods when officers and   directors are able to buy and sell securities of the company. In   addition, the company also can choose to disclose any material   non-public information prior to any share repurchase if it is in   possession of material non-public information at a time when it is   seeking to make a share repurchase outside of a Rule 10b5-1 trading   plan. As mentioned in the quote, a company can also set up a trading plan in advance (at a time when it doesn't have inside information) to be executed unconditionally in the future. Then even if the company comes into possession of inside information, it won't be using this knowledge to direct trades.
http://www.investopedia.com/university/shortselling/shortselling1.asp  'Therein lies the major risk of short selling, the fear of infinite losses. While the maximum loss for a long investor is the amount invested in a security, the maximum loss for a short seller is theoretically infinite, since there is no upper limit to a stock’s price appreciation. This risk is compounded by the fact that during a short squeeze or buy-in...'  Never have shorted a stock. Too intimidated by that!
"Yes, you're still exposed to currency risk when you purchase the stock on company B's exchange. I'm assuming you're buying the shares on B's stock exchange through an ADR, GDR, or similar instrument. The risk occurs as a result of the process through which the ADR is created. In its simplest form, the process works like this: I'll illustrate this with an example. I've separated the conversion rate into the exchange rate and a generic ""ADR conversion rate"" which includes all other factors the bank takes into account when deciding how many ADR shares to sell. The fact that the units line up is a nice check to make sure the calculation is logically correct. My example starts with these assumptions: I made up the generic ADR conversion rate; it will remain constant throughout this example. This is the simplified version of the calculation of the ADR share price from the European share price: Let's assume that the euro appreciates against the US dollar, and is now worth 1.4 USD (this is a major appreciation, but it makes a good example): The currency appreciation alone raised the share price of the ADR, even though the price of the share on the European exchange was unchanged. Now let's look at what happens if the euro appreciates further to 1.5 USD/EUR, but the company's share price on the European exchange falls: Even though the euro appreciated, the decline in the share price on the European exchange offset the currency risk in this case, leaving the ADR's share price on the US exchange unchanged. Finally, what happens if the euro experiences a major depreciation and the company's share price decreases significantly in the European market? This is a realistic situation that has occurred several times during the European sovereign debt crisis. Assuming this occurred immediately after the first example, European shareholders in the company experienced a (43.50 - 50) / 50 = -13% return, but American holders of the ADR experienced a (15.95 - 21.5093) / 21.5093 = -25.9% return. The currency shock was the primary cause of this magnified loss.
The risk of the particular share moving up or down is same for both.   however in terms of mitigating the risk, Investor A is conservative on upside, ie will exit if he gets 10%, while is ready to take unlimited downside ... his belief is that things will not go worse .. While Investor B is wants to make at least 10% less than peak value and in general is less risk averse as he will sell his position the moment the price hits 10% less than max [peak value] So it more like how do you mitigate a risk, as to which one is wise depends on your belief and the loss appetite
When you buy a stock, the worst case scenario is that it drops to 0.  Therefore, the most you can lose when buying a stock is 100% of your investment. When you short a stock, however, there's no limit on how high the stock can go.  If you short a stock at 10, and it goes up to 30, then you've lost 200% on your investment.  Therefore shorting stocks is riskier than buying stocks, since you can lose more than 100% of your investment when shorting. because the price might go up, but it will never be as big of a change as a regular price drop i suppose... That is not true.  Stocks can sometimes go up significantly (50-100% or more) in a very short amount of time on a positive news release (such as an earnings or a buyout announcement).  A famous example occurred in 2008, when Volkswagen stock quintupled (went up 400%) in less than 2 days on some corporate news: Porsche, for some reason, wants to control Volkswagen, and by building up its stake has driven up the price. Hedge funds, figuring the share price would fall as soon as Porsche got control and stopped buying, sold a lot of VW shares short. Then last weekend, Porsche disclosed that it owned 42.6 percent of the stock and had acquired options for another 31.5 percent. It said it wanted to go to 75 percent. The result: instant short-squeeze. The German state of Lower Saxony owns a 20 percent stake in VW, which it said it would not sell. That left precious few shares available for anyone else. The shorts scrambled to cover, and the price leaped from about €200, or about $265, to above €1,000.
"I seem not to be able to comment on the first answer due to reputation, so I'll aim to enhanced the first answer which is generally good but with these caveats: 1) Dividends are not ""guaranteed"" to preferred shareholders.  Rather, preferred shareholders are normally in line ahead (i.e. in preference to or ""preferred"") of common shareholders in terms of dividend payment.  This is an extremely important distinction, because unlike investments that we generally consider ""guaranteed"" such as CDs (known as GICs in Canada), a company's board can suspend the dividend at anytime for long periods of time without significant repercussions -- whereas a missed payment to a bank or secured bondholder can often push a company into bankruptcy very quickly. 2) Due to point 1), it is extremely important to know the ""convenants"" or rules sorrounding both the preferred shares you are buying and the other more senior creditors of that issuing company (i.e. taxes (almost always come first), banks loans, leases, bonds etc.).  It is also important to know if a particular preferred share has ""cumulative"" dividends.  You generally only want to buy preferred's that have ""cumulative"" dividends, since that means that anytime the company misses a payment, they must pay those dividends first before any other dividends at the same or lower priority in the future. 3) Unlike a common stock, your upside on a preferred stock is relatively fixed: you get a fixed share of the company's profit and that's it, whereas a common shareholder gets everything that's left over after interest and preferred dividends are paid. So if the company does really well you will theoretically do much better with common stock over time. For the above reasons, it is generally advisable to think of preferred shares as being more similar to really risky bonds in the same company, rather than similar to common stock.   Of course, if you are an advanced investor there are a lot more variables in play such as tax considerations and whether the preferred have special options attached to them such conversion into common shares."
Say I am an employee of Facebook and I will be able to sell stares at enough of a profit to pay of my mortgage and have enough money left to cover my living costs for many years. I also believe that there is a 95% chance that the stock price will go up in the next few years. Do I take a 5% risk, when I can transform my life without taking any risk?   (The USA tax system as explained by JoeTaxpayer increases the risk.)  So you have a person being very logical and selling stocks that they believe will go up in value by more than any other investment they could have.   It is called risk control. (Lot of people will know the above; therefore some people will delay buying stock until Lock Up expiration day hoping the price will be lower on that day.   So the price may not go down.)
Generally speaking, you want to consider everything so that you can perform a risk assessment and decide on your risk mitigating strategy (see Q4). By assessing the likelihood and severity of risks you may find that even in cases where you are comparatively as worse-off (e.g. in case of complete bust), the likelihood may differ. For example, keeping gold in a personal stash at home vs your employer going bankrupt if you are working for a large firm. Do note that you want to compare risks (both likelihood and severity) after any risk mitigation strategy you may want to put in place (e.g. maybe putting your gold in a safety box in a secure bank would make the likelihood of losing your gold essentially null). Is there a way to estimate the probability of such events, better than intuition ? Estimating probability or likelihood is largely dependent on data on hand and your capacity to model events. For most practical purposes of an individual, modelling would be way off in terms of reward-benefits. You may therefore want to simply research on past events and assign them a 1-5 (1 being very low, 5 being very high) risk rating based on your assessment of the likelihood. For example, you may assign a 1 on your employer going bankrupt and a 2 or 3 on being burglarized. This is only slightly better than intuition but has the merit of being based on data (e.g. frequency of burglary in your neighborhood). Should I only consider more probable outcomes and have a plan for them if they occur? This depends largely on your risk appetite. The more risk averse you are, the more thorough you will want to be in identifying, tracking and mitigating risks. For the risks that you have identified as relevant, or of concern, you may opt to establish a risk mitigating strategy, which is conventionally one of accepting, sharing (by taking insurance, for example), avoiding and reducing. It may not be possible to share or reduce some risks, especially for individuals, and so often the response will be either to accept or avoid the given risks by opting in or out on an opportunity."
"No stock is risk-free. Some of the biggest companies in the country, that seemed incredibly stable and secure, have suffered severe downturns or gone out of business. Twenty or thirty years ago Kodak ruled the camera film market. But they didn't react quickly enough when digital cameras came along and today they're a shadow of their former self. Forty years ago IBM owned like 90% of the computer market -- many people used ""IBM"" as another word for computer. Sears used to dominate the retail department store market. Etc."
Not that I am aware.  If you are trying to mitigate losses from stock purchases, you may want to consider stock mutual funds. This is why single stocks can be extremely risky.
Adding to the answers above, there is another source of risk: if one of the companies you are short receives a bid to be purchased by another company, the price will most probably rocket...
The risk situation of the put option is the same whether you own the stock or not.  You risk $5 and stand to gain 0 to $250 in the period before expiration (say $50 if the stock reaches $200 and you sell).   Holding the stock or not changes nothing about that.  What is different is the consideration as to whether or not to buy a put when you own the stock.  Without an option, you are holding a $250 asset (the stock), and risking that money.  Should you sell and miss opportunity for say $300? Or hold and risk loss of say $50 of your $250?  So you have $250 at risk, but can lock in a sale price of $245 for say a month by buying a put, giving you opportunity for the $300 price in that month.  You're turning a risk of losing $250 (or maybe only $50 more realistically) into a risk of losing only $5 (versus the price your stock would get today).
"JoeTaxpayer's answer adequately explained leverage and some of your risks.   Your risks also include: The firm's risk is that you will figure out a way to leave them with a negative account that contributes to another customer's profit and yet you disappear in a way that makes the negative account impossible to collect. Another risk is that you are not who you say you are, or that the money you invest is not yours.  These are called ""know your customer"" risks."
It really centers on the probability of your position falling to $0 and your level of comfort if that were to happen.  There are a plethora of situations that could cause an option contract to become worthless.  The application of leverage to a position also increases the risk. Zero risk would be an FDIC insured savings account, high risk would be buying options on margin, and there's a very wide grey area in between.  I agree that the whole process of assigning a risk level is dubious at best.  As you say, it seems using past data could help assign a risk level, look to beta values if you believe in that.  The problem here is the main disclaimer in use is that past performance cannot be relied upon for future gains. As an aside, if the US government files bankruptcy you'll have a whole host of more immediate problems than the value of your t-bills.  At that point dollars would have been a risky investment.
It all depends on the liquidity of your investments some examples: You can mitigate only the risk that you can control. It is always good to have:
Let's consider that transaction cost is 0(zero) for calculation. In the scenario you have stated, maximum profit that could be made is 55$, however risk is unlimited. Hedging can also be used to limit your losses, let's consider this scenario. Stock ABC trading @ 100$, I'll buy the stock ABC @ 100$ and buy a put option of ABC @ strike price 90$ for a premium of 5$ with an expiration date of 1 month. Possible outcomes I end up in a loss in 3 out of 4 scenarios, however my loss is limited to 15$, whereas profit is unlimited.
What are the risks pertaining to timing on long term index investments? The risks are countless for any investment strategy. If you invest in US stocks, and prices revert to the long term cyclically adjusted average, you will lose a lot of money. If you invest in cash, inflation may outpace interest rates and you will lose money. If you invest in gold, the price might go down and you will lose money. It's best to study history and make a reasonable decision (i.e. invest in stocks). Here are long term returns by asset class, computed by Jeremy Siegel: $1 invested in equities in 1801 equals $15.22 today if was not invested and $8.8 million if it was invested in stocks. This is the 'magic of compound interest' and cash / bonds have not been nearly as magical as stocks historically. 2) How large are these risks? The following chart shows the largest drawdowns (decreases in the value of an asset) since 1970 (source): Asset prices decrease in value frequently. Financial assets are volatile, but historically, they have increased over time, enabling investors to earn compounded returns (exponential growth of money is how to get rich). I personally view drawdowns as an excellent time to buy - it's like going on a shopping spree when everything in the store is discounted. 3) In case I feel not prepared to take these risks, how can I avoid them? The optimal asset allocation depends on the ability to take risk and your tolerance for risk. You are young and have a long investment horizon, so if stocks go down, you will have plenty of time to wait for them to go back up (if you're smart, you'll buy more stocks when they go down because they're cheap), so your ability to bear risk is high. From your description, it seems like you have a low risk tolerance (despite a high ability to be exposed to risk). Here's the return of various asset classes and how the average investor has fared over the last 20 years (source): Get educated (read Common Sense on Mutual Funds, A Random Walk Down Wall Street, etc.) and don't be average!
"Every investment comes with a risk. There is also a bit of speculation involved. In there is an anticipation that one expects the value to go up in normal course of events. By your definition ""If I buy this equipment, I could produce more widgets, or sell more widgets,"" as an investment. Here again there is an anticipation that the widgets you sell will give you more return. If you are investing in stock/share, you are essentially holding a small portion of value in company and to that extent you are owining some equipment that is producing some widget .... Hence when you are purchasing Stocks, it would be looked as investment if you have done your home work and have a good plan of how you want to invest along with weiging the risk involved. However if you are investing only for the purpose of making quick bucks following so called hot tips, then you are not investing but speculating."
The answer depends on whether the company involved has 'limited liability'. Most, but not all public and listed companies and corporations have this, but not all so it is worth checking and understanding what you are getting involved with.   The expression 'limited liability' means that the owners (shareholders) of a company have a liability up to the amount of the face value of the shares they hold which they have not yet paid for. The difference is usually minor but basically it means that if you buy $10 of shares you have no liability, but if the company gives you $10 of shares, and you pay them (in cash or kind) $5, then you still have a liability of $5. If the company fails, the debtors can come after you for that liability.  An 'unlimited liability' company is a different animal altogether. Lloyds insurance is probably the most famous example. Lloyds worked by putting together consortiums to underwrite risk. If the risk doesn't happen, the consortium keeps the premiums, if it does, they cover the loss. Most of the time they are very profitable but not always. For example, the consortiums which covered asbestos caused the bankruptcies of a great many very wealthy people.