[Stock Strategy] Are you aware of floating shares (float ratio)? What does 'stock price lightness/heaviness' mean?

Hello.

When looking at stock investment news, have you ever wondered, even with equally popular companies, 'Why does this stock move so violently all of a sudden?' or 'Why is that stock's movement always so stable?'

Actually, the key to this lies in the world of **'floating shares'** that I will talk about this time.

Once you understand this, you will be able to clearly grasp the habits of stock price movements, such as 'why this stock has volatile price movements (or why it is heavy).'

■ What exactly are 'floating shares'?

Roughly speaking, these are the shares among those issued that 'we, the general public, can freely buy and sell.'

Conversely, shares that are tightly held by founding families, parent companies, the government, etc., and rarely appear on the market are called **'fixed shares.'**

Think of it like a 'concert venue'

Try imagining the seats at a concert venue.

• Total seats (total shares issued): 10,000 seats

• Reserved seats (fixed shares): 9,000 seats (already reserved by the parent company or the president's family)

• General seats (floating shares): 1,000 seats (the portion we can buy tickets for)

In this case, even if the venue is large, there are only 1,000 seats that we can actually sit in (buy and sell).

Guidelines for the 'float ratio' figure

The 'float ratio' indicates what percentage of the total these 'general seats (floating shares)' account for. You can check this in the Japan Company Handbook or on securities company websites, but here is a rough idea of how it feels.

• 5%–30% (low): Tightly held by major shareholders. There are few shares circulating in the market, so the stock price can easily jump with just a few orders.

• 35%–60% (average): Many standard companies fall within this range.

• 65%– (high): Shareholders are quite dispersed, making it easy to buy and sell at any time, and liquidity is high.

■ The lineup of 'stocks with high float ratios' and 'stocks with low float ratios'

So, what kind of companies specifically fall into these categories? *Since the ratio fluctuates depending on the time, this is just an image of general trends.

1. Trends in companies with a 'high' floating share ratio

Characteristic: Shareholders are not concentrated in specific individuals, and investors around the world hold the shares.

• Sony Group

• Honda Motor Co., Ltd.

• Nomura Holdings

These companies have relatively weak control by founding families or parent companies and are actively traded in the market. They have the image of being 'open companies that welcome everyone.' Because many investors participate, they are characterized by extremely high liquidity.

2. Trends in companies with a 'low' floating share ratio

Characteristic: There are specific dominant shareholders (founders, parent companies, government, etc.).

• Japan Post / Japan Post Bank

  • Reason: Because the government or parent company holds the majority of the shares. The amount circulating in the market is surprisingly small.

• Fast Retailing (Uniqlo)

  • Reason: Because Chairman Yanai and his family hold a large number of shares. Although the company is huge, the proportion of shares actually traded frequently in the market is on the lower side.

• Oracle Japan

  • Reason: Because the American parent company (Oracle) holds a large portion of the shares. In so-called 'parent-subsidiary listings,' the subsidiary side tends to have fewer floating shares because the parent company continues to hold the shares.

• SoftBank Group

  • Reason: Because the founder, Mr. Son, holds a large number of shares.

■ 'Pros and Cons' for Investors

The floating share ratio is directly linked to stock price movements (price action).

What happens when floating shares are 'low'? (Scarce platinum tickets)

Because there are few shares circulating in the market, they have the characteristic of being 'prone to volatile price movements'.

• Pros: When they become popular and buy orders flood in, the stock price tends to soar rapidly because there are few shares for sale (sometimes called 'blue sky' or 'sky is the limit').

• Cons: Conversely, when sell orders appear, there are few buyers, making the stock price prone to sharp drops. Also, there is a risk that supply and demand will collapse if a major shareholder sells even a small amount of shares.

What happens when floating shares are 'high'? (Abundant circulation)

Because there are many shares in the market, 'price movements tend to be mild'.

• Pros: Since buying and selling are active, the stock price is less likely to fluctuate wildly even if large orders are placed. They are preferred by institutional investors who want to trade stably.

• Cons: Because enormous buying energy is required to significantly raise the stock price, rapid surges are unlikely to occur.

■ Summary: Changing how you look at news

No matter how large a company is, from now on, please try to imagine, 'But what percentage of those are actually circulating in the market?'

• Companies with many floating shares = Open shares that anyone can easily buy and sell

• Companies with few floating shares = A scramble for rare shares circulating in the market

With this perspective, the reasons behind a company's shareholder composition and the 'lightness or heaviness' of daily stock price movements should become much more interesting to observe.