What prevents me from being diluted out as a shareholder?

If you're going to invest, you do it at your own risk.

Nobody is going to protect you from your own investing decisions if you choose to do so without a) educating yourself or, b) using an investment advisor/broker to help you.

The short answer is, nothing protects you from dilution. You have no say in the matter (apart from deciding to sell your shares!).

That being said, dilution can take on many forms in its effects on a stock. Can it make your shares less valuable? By general definition, yes - anytime more of anything is available in the marketplace the less it's worth unless there's at least a reasonably equal rise in the demand for it.

Be careful about applying hard and fast rules in the stock markets though, because the moment you do that you'll find an exception (or lots of them!). Depending on the nature of the new issuance, it can have an equally beneficial effect over the longer term.

An example is when stocks split. Imagine if you'd owned Apple stock from it's initial IPO and never sold or bought any additional shares. Because of the number of splits over the years, you'd have a great many more shares than you started with, not to mention each one of those shares you own now is definitely worth more than its IPO price.

In such an instance, would you really care if your shares are "diluted" from what they were when you first bought them? I doubt it! (grin)

The only way you can "protect yourself" is by voting against any share dilution plans at the annual general meeting. But everyone else there has votes as well, and there is every chance you will be out-voted.

It's a commercial decision whether or not to issue more shares, whether that's part of an employee incentive scheme, or simply to sell more shares on the open market. You can't prevent it if that's what the company decides to do. In most cases, the cost to you as a shareholder is zero or small.

Selling more shares brings new money into the company, meaning that you own a smaller proportion of a more valuable company. Even share option schemes for employees usually require the employees to pay something for their shares.

Your assumption from the comments is that shared are "created" when given out as compensation.

This is not true - companies must indicate how many shares are "held back" to be used as compensation for employees, directors, etc. That amount is typically accounted for by analysts, so their dilutive effect is already accounted for in the fair market value.

When a company actually issues more shares, then existing shareholders are diluted, but it does not mean that their value necessarily goes down. If a company worth $1 Million has issued 1 Million shares (each share is worth $1), and then issues another 1 Million, selling them for $1, then company now is worth $2 Million and has 2 Million shares, so the existing shareholders have not lost any value.

Obviously the price that they get for the second million shares highly depends on what the company intends to do with the investment - it is issues shares just to stay in business, that's an indication that the company is desparate and the new shares may be worth less (which does reduce the value of existing shares_). The opposite can be true, though. If it uses the proceeds to invest in something that will help them grow faster, then the value of existing shares can actually increase.

Welcome new user, to literally answer your question

What prevents me from being diluted out as a shareholder?

You cannot "protect" yourself from it.

Dilution, and the various similar concepts you are referring to, are simply part of the nature of public stocks.

End of story.

If you don't like that concept, do not invest in stocks. Find alternate investments.

You can't, unless it is an NYSE or NASDAQ stock. The current state of corporate law in the United States allows corporations to change their ownership by issuing new shares without compensating existing owners. Nearly all corporations traded on the major exchanges have provisions in their bylaws that allow the management of the company to issue new shares and dilute the value of existing shareholders to whatever level they desire. For example, an OTC company with a million shares selling at $20 each could issue 100 million new shares at $0.05 each and this would make the holdings of the existing shareholders virtually worthless and there is nothing they can do about it.

In the case of NASDAQ and NYSE there is a listing rule that any issuance of new common stock in excess of 20% of outstanding shares must be approved by a shareholder vote. So, this rule can prevent crazy dilutions but management can still rip you off of up to 20% of your money with no approval needed. Also, when a company gets distressed, often shareholders will paradoxically approve large dilutions, so you can get screwed anyway even with the 20% rule. Basically what is happening is that the management of the company enriches themselves at the expense of the shareholders. Welcome to the stock market. It's kind of reverse Ponzi scheme in which old shareholders are screwed to bring in new investors.

This is one of the reasons why stock market indexes are bullshit. They show the stock market just going up and up and up. But it is total BS. For example, in 2009 Citigroup quadrupled their shares from 5 billion to 22 billion and this caused their "value" and the index to go up, but the reality for actual investors is that they saw the stock price decline from 50 to 35. So, while the index was going up, the actual shareholders were losing money.