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Author: TMFSelena Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2201  
Subject: Re: What does "float" mean? Date: 3/1/2000 11:57 AM
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Here are some answers relating to float that I prepared for our weekly newspaper feature (for more info on how to get the feature into your local paper: http://www.fool.com/specials/1999/sp991117paper.htm)

Selena


Q. What's the difference between a company's shares outstanding and its "float"? -- J. L., Bozeman, Mont.

A. All the shares a company has issued are its shares outstanding. Some may be held by company insiders. The rest are owned by the public and represent the "float." Insider shares are usually held for a long time and not traded too often, while shares in public hands trade more frequently. Consider Dr. Petri's Baby Maker Inc. (ticker: CLONE), which has, 50 million shares outstanding. If Dr. Petri himself and other insiders own 60 percent of them, then the float is the remaining 40 percent, or 20 million shares.


Q. What's a stock's "float"? -- E. C., Sacramento, Calif.

A. The float refers to the portion of shares outstanding that are available to be traded by the public. It's good to pay attention to this number with smaller companies, as stocks with small floats (referred to as "thinly-traded") can be extra volatile.

Consider Muriel Siebert Inc., the discount brokerage firm. It has roughly 21 million shares outstanding, but according to a proxy statement filed with the SEC in November, Muriel Siebert herself owns more than 20 million of them. The float is only about 700,000 shares. This means that any kind of demand will send the stock price soaring, as supply is so limited. And vice versa.

---- and regarding a different kind of float:


Q. I'm trying to understand the insurance business. Can you explain "float"? -- P. V., Charlotte N.C.

A. Warren Buffett explained it best in his 1997 letter to shareholders. (His company, Berkshire Hathaway, owns a number of insurance companies, such as GEICO.)

He said: "[F]loat is money we hold but don't own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money. Typically, this pleasant activity carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay. That leaves it running an 'underwriting loss,' which is the cost of float. An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money."

You can learn much more from Buffett's letters, which are at www.berkshirehathaway.com.
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