Stock Dilution: Why Your Ownership Keeps Shrinking

When a company issues new shares, existing shareholders’ ownership slice gets smaller—that’s stock dilution. Here’s what actually happens:

The Two Main Types:

• Primary dilution: Company launches new shares to raise cash for expansion or debt payoff. Your % stake drops immediately.
• Secondary dilution: Existing shareholders sell to new investors. Impact depends on sale price—could be a win or loss.

Why It Wrecks Your Portfolio:

1. Voting power tanks - Your influence over company decisions shrinks
2. EPS nosedives - Same earnings divided by more shares = lower per-share earnings
3. Dividend gets sliced - Same payout spread across more shares = less cash in your pocket
4. Stock price pressure - Market sees diluted value, confidence drops

How to Defend Yourself: Companies use anti-dilution clauses (ratchet provisions, weighted average adjustments) to protect shareholder value when new shares hit at lower prices.

Bottom line: Watch for dilution announcements. It’s not always bad—startups need capital to grow—but it’s a real threat to your ownership stake. Do the math before buying.