These Stocks Could Sink You

If smooth sailing on the stock market's seas sounds boring to you, and you crave companies full of stormy ups and downs, stocks with small floats might be just what you're looking for. Personally, though, I think you're better off without them.

First, a few definitions
To understand "float," we need to first understand the concept of outstanding shares -- the total number of shares a company has issued. Among other things, the number of shares outstanding can be multiplied by a company's current price to calculate its market cap, as the following examples show:

Data: Yahoo! Finance.

But not all of a company's outstanding shares can be freely traded on any given day. Some are restricted, while others may be held by company insiders. Whatever's left over -- owned by the public and available for trading -- is referred to as a company's "float."

As you can see by the chart below, some companies' float comprises a majority of their shares, while others have less than half of their outstanding shares available for trading:

Data: Yahoo! Finance.

The fewer shares a company has available, the more powerfully the forces of supply and demand can work upon it. Stocks with tinier floats -- most often issued by smaller companies -- can experience wild price swings, and they're also more prone to short squeezes, which can really ramp up shares' volatility.

Those who like to gamble on stocks enjoy these huge ups and downs, and try to time their trades accordingly. Those who'd rather invest in more stable enterprises should steer clear.