Stock Dilution and the Main Types of Investments Explained Simply

What It Covers

Andrew Sather and Stephen Morris explain share dilution mechanics — when it helps versus hurts shareholders — then survey major investment types including stocks, gold, Bitcoin, mutual funds, bonds, and REITs, helping beginners understand what each asset class actually does and how to evaluate it.

Key Questions Answered

• •Diluted Shares Outstanding: Always track diluted shares outstanding — not basic — because diluted figures account for unexercised stock options already granted to employees. Find this metric at the bottom of the income statement or use a tool like Fiscal.ai, which displays a ten-year trend and annual CAGR in one click, saving significant manual spreadsheet work.
• •Stock-Based Compensation Red Flag: A company can report rising earnings per share and announce billions in buybacks while its actual share count still increases — because stock-based compensation quietly offsets every repurchased share. Snowflake is cited as a real example. Always verify the share count trend independently rather than trusting headline buyback announcements or reported EPS figures alone.
• •When Buybacks Destroy Value: Share buybacks become harmful in three specific scenarios: when funded by borrowed debt, when executed at extremely high price-to-earnings ratios (around 100x) where billions buy negligible ownership increases, or when used to satisfy Wall Street optics rather than genuine long-term capital allocation. Evaluate management intent before crediting any buyback program.
• •Gold vs. Stocks Distinction: Gold functions as a store of value but generates zero cash flow, profits, or compounding returns — it remains the same asset regardless of price movement. Stocks represent ownership in businesses that actively create profits. For investors with a 20-plus year time horizon, the compounding nature of business ownership structurally outperforms a non-productive store of value over time.
• •REIT Due Diligence — Occupancy Thresholds: REITs require deeper analysis than standard equities because property-level economics matter significantly. Commercial office REITs typically need occupancy above 80% to cover maintenance and operating costs — below that threshold, losses accelerate rapidly. Additionally, many REITs continuously issue new shares to fund acquisitions, so monitoring dilution alongside dividend yield is necessary before investing.