30. What is Stock Volume Video Lecture | Become an Expert: Value Investing - Business Basics

welcome the course three unit three
lesson one what is stock volume well a
lot of people would hear this term men
you don't understand what volume
actually shows them about the current
position and the value of a business so
that's what we're gonna be discussing in
this lesson in order to understand
volume I'm going to go ahead and use a
company that's on the on the stock
exchange and that's been in the news a
lot because the bank is doing fairly
well under kind of stressful conditions
for finance companies and that's gonna
be Wells Fargo so that's gonna be the
company that we're going to be using
throughout this demonstration okay so
the current market price for Wells Fargo
on the 6th of July 2012 is thirty two
dollars and ninety nine cents as you can
see below there we have a chart of the
market price for Wells Fargo now if
you've been taking all these lessons on
Buffett's books from the very first
lesson up until now you've probably
noticed that I've never showed you a
market price chart for any stock and
that's because I don't care what the
market price of a stock is I only care
what I think the value of a stock is all
of this chart tells me is what other
people have traded this company for and
where it's at right now and that really
doesn't mean all that much to me and as
we go through this lesson you're gonna
see why I have that general opinion okay
so I said that we were gonna be using
Wells Fargo and when we pull up the
stock ticker for Wells Fargo we can go
ahead and look at how many shares
outstanding there are on the business
okay so let me show you how and where
you'd find that number okay here I am at
MSN money and I'm just at the top level
page and so I'm gonna put in the ticker
for Wells Fargo and it's WFC and I hit
enter and it takes us to the top level
page for Wells Fargo okay so all we have
to do to find out how many shares there
are of Wells Fargo we just got to scroll
down until we see this right here where
it says shares outstanding okay and you
can see I just highlighted it right
there and it says 5.3 billion so that's
how many shares of Wells Fargo has been
sliced up into this 5.3 billion shares
so what I've done with this picture is I
graphically represented how many shares
there are of wells-fargo
inside of this circle let's just imagine
that this circle represents the entire
company of Wells Fargo and that each one
of those dots is symbolic of a share
inside of Wells Fargo okay I have five
hundred and thirty-one dots inside of
this circle that you're looking at okay
so that means that each dot represents
ten million shares okay there which is a
lot of shares but there's 5.3 billion
total shares inside of that circle right
there so when we look at the volume the
number that's listed whenever we look up
a company that is the shares traded from
one owner to another in a single day
okay so when you see the volume says
whatever say it says ten that means that
10 shares were traded to some other
owner for that given day so let's go
ahead and pull up the volume for Wells
Fargo off of MSN money okay so here we
are back at the MSN money page for Wells
Fargo and as you remember when we first
came to this page we went down and we
saw how many shares there were of Wells
Fargo outstanding and we found that
there was 5.3 1 billion shares now when
we go up and we look at the volume we
can see that Wells Fargo had 17 million
shares traded on this day okay so today
they had seventeen point nine million
shares traded so we when a person would
come to this page and they might just go
straight to the volume and look at that
and they'd say oh wow almost 18 million
shares were traded that number really
doesn't mean a lot it just sounds like a
like a lot of shares so you got to put
that in context you got to figure out
well how many you know what percent is
that of the company that was actually
traded and so that's what we're gonna do
when we go back to the slides so when we
look at our symbolic representation of
all the shares in the company you might
be able to see down at the bottom left
I've got one of the little dots
highlighted in red okay now I should
probably have about one and a half to
almost two dots highlighted that's
that's my mistake but when you look at
that you can see that it's just one dot
out of all those 531 dots
inside of that circle those are the
people that are determining the market
price so when you take a step back and
you think about that that that one
little tiny dot is the group of people
that are actually determining the market
price for the entire company for all
those other shareholders that are
holding their shares of that business
only that small group is actually
determining that price and what you've
got to keep in mind is those people
aren't determining the value of the
company they're simply determining the
short-term price of the company so you
might be asking yourself so how can we
use volume to our advantage what what is
it that we can learn from all this well
here's what I'm going to show you so on
2 March 2009 that was kind of at the
height that the stock market crash and
when we look at the volume of shares
that were traded on that day for Wells
Fargo we can see that there was 1.1
billion shares that were traded just on
that given day that's almost one fifth
of the entire company changed hands to
new owners ok and that was the highest
volume that Wells Fargo had seen in 10
years so how could we use that bit of
information to our advantage as a stock
trader well when we go to the chart when
we go to the price chart and this is the
price chart for Wells Fargo over it over
the last 10 years ok that date that I
just showed you where the volume was the
highest that it was for 10 years is
right there at the lowest point on our
market price ok so that should raise
some interest for you
so what we can learn is that when the
volume we have a really large volume
relative to previous days or years or
months this means that the price is at a
peak or a valley so let's go ahead and
look at the numbers on Wells Fargo back
on that day where they had enormous
volume traded for the company when we
look at that the market price was seven
dollars and 50 cents was the price you
could buy those shares for the book
value in the company was 23 dollars and
43 cents the earnings per share back in
2009
one dollar and seventy five cents so it
wasn't even in a negative BPS situation
as a bank stock it was in positive
situation and they were also paying a
dividend which I don't even have listed
here when you look at the debt to equity
there was a two point one seven now I
know I've preached and I've said that
you want to try to find a company that
has a debt to equity below 0.5
whenever you get into finance when you
get into different sectors like the
finance sector this debt equity is
actually extremely low for a finance
company and that's because the company
deals their business is that so that's
why you're gonna see that that the
equity pretty high so when you look at
these numbers back in 2009 and you would
have seen that volume just hitting
all-time highs you would have known that
this was probably the the bottom of the
time for for Wells Fargo I know that's
easy for me to say three years later but
when you look at the numbers and you
look at that volume that was being
traded a person who's a really
professional stock trader would have
been able to identify this and they
those were the people that were buying
up all those shares I'd be willing to
bet that if you looked at how many
people were selling their shares versus
how many people were buying it the
number of sellers would far exceed the
number of buyers which shows you that
you had a few smart people out there
that weren't scared and actually knew
the value of the company and they were
buying all the shares from the people
who were scared and didn't know the
value of the company you can all use the
volume in order to determine all of this
so the the point is use volume to your
benefit first thing that you need to
understand is that you need to remind
yourself the traders are only
determining the price and not the value
and the the best way to understand that
is think of that circle and think of all
those shares inside of it and remember
that one doc was determining the price
not the value the second thing that I
want you to take away is that use that
volume to help you predict the right
time to buy more assets or change into a
better position remember when the volume
is really high it could also mean that
the price is overvalued and that people
are getting out because they feel that
the stock is way overpriced
so when you see a high volume it's
telling you one thing you're either
either at the top of the chart or you're
at the bottom of the chart and that's
for you to determine I'm sure if you
use a lot of the tools that I've taught
you throughout the site with it whether
it's course one or course two you're
gonna be well-equipped and understand
which part of the chart you're on
whether you're at the top of the bottom
so that should be generally pretty easy
for you to predict they use that volume
to help predict that and determine where
you're at so this concludes course three
unit three lesson one what is stock
volume I hope the tips that I gave you
will help you out and I look forward to
seeing you in the next unit