What type of information should you consider when purchasing common shares?

Once you have decided to purchase or sell common shares of a specific company, you will need to obtain and understand certain share information. While the majority of the information can be obtained from the firm that holds your investment account, the following list includes the type of information you may want to ask yourself when looking to invest in common shares:

  • The type of security to be purchased/sold. Are they common shares ? (Voting, non-voting, multiple voting, preferred shares, convertible debentures, warrants, rights, split shares, etc.)
  • Which stock exchange do they trade on? (The TSX, Venture, New York Stock Exchange (NYSE), NASDAQ, etc.)
  • What is the share’s most recent or last trading price?
  • How many shares do you want to purchase or sell? Most of the time an investor will decide the dollar amount they wish to transact in the shares and then determine the number of shares to be purchased/sold by dividing the dollar amount by the last trading price for the shares. Ensure that you include transaction costs in your calculations.
  • You may also want to know the current Bid price and volume and the Ask price and volume. The Bid price is the price that other investors are offering to pay to purchase the shares at and the Bid volume is the number of shares they are willing to buy at the Bid price. The Ask price is the price that other investors are willing to sell their shares and the Ask volume is the number of shares available for sale at the Ask price.
  • You may want to know the Bid-Ask spread. This is the difference between the Bid price and the Ask price.  For example, if the current Bid price for a share is $31.00 and the current Ask price is $31.25, then the Bid-Ask spread is $0.25. Typically, a small Bid-Ask spread implies a healthy liquid market for buying and selling the shares. Conversely, a large Bid-Ask spread implies an illiquid difficult market for the shares.
  • You might want to look at the volume of shares trading in any given day. Typically, the larger the number of shares trading each day, the healthier the market for those shares and the narrower the Bid-Ask spread. A larger volume of shares trading implies that it will be easier for an investor to buy or sell shares.
  • You might want to know the share price trend. Knowing the direction the share price is trending (i.e. up or down) will help you to enter a successful buy or sell at a better price.
  • If the shares trade on a foreign exchange, then you should try to understand the potential impact changes in the currency might have on the success of the investment. For example, if you purchase an American share that trades in U.S. dollars and the share price goes up by 10%, but the currency declines by 15%, then you would have lost approximately 5% on your investment. When investing in currencies other than Canadian dollars, investors should anticipate currency risks and their net impact on the investments value.

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