Why Insider Ownership Can Beat Market-Cap Investing With Haren Bhakta of Insider Ownership Index

I saw that Skin in the Game, Nicholas Taleb's Skin in the Game.

I'm sorry.

That's right.

So I

read Skin in the Game literally seven times.

I'm quite obsessed with that book.

And I thought of the idea of the Skin in the Game Index, which this is essentially a Skin in the Game Index, by basically reading the book.

And that's probably how it hit me.

know how skin in the game is incredibly important in decision making and you know like he says um people have two minds one when there's skin in the game one when there's none and i'm typically dumb when i don't have skin in the game he writes that in the book and i think most people operate that way when you have something on the line your mind operates differently and when you have nothing on the line you know you you're most people are dumb

What does that phrase, skin in the game, mean for the practical investor?

Skin in the game means that you have something on the line.

You have something to lose and you're going to operate know with much more integrity much more passion much more motivation when you have something to lose and that's what you want to see is that they have something to lose if they're wrong and there's countless examples of where ceos do not have skin in the game and you know it ends in catastrophe so i'll give you a prime example 2023 silicon valley bank went to zero Now, it's actually pretty rare for a company to go to zero while in the S&P 500.

But usually the S&P will kick them out.

But with Silicon Valley Bank, it happened so fast that it was in the index when it went to zero.

So if you owned S&P, you had exposure to Silicon Valley Bank.

But I looked at the proxy filing in 2023, the year it went bankrupt, and the ownership amongst the insiders was so low that it was represented by an asterisk.

So this is what happens when you have CEOs and leaders who own nothing of the organization.

What they aim for is hitting the ball out of the park and aiming for bonuses.

So they lever up the company, take chances that they otherwise would not have if they own a meaningful stake.

And, you know, when they're wrong, it goes to zero.

And in that case, that's what happened.

So what you want is meaningful ownership of companies that you invest in by the leaders.

So imagine, you know, investing in companies where leaders own nothing, you know, what they're motivated by.

is not creating value.

They're motivated by short-term metrics, hitting quarterly numbers and getting large bonuses, but not creating sustainable value.

I saw that Skin in the Game, Nicholas Taleb's Skin in the Game.

I'm sorry.

That's right.

So I

read Skin in the Game literally seven times.

I'm quite obsessed with that book.

And I thought of the idea of the Skin in the Game Index, which this is essentially a Skin in the Game Index, by basically reading the book.

And that's probably how it hit me.

know how skin in the game is incredibly important in decision making and you know like he says um people have two minds one when there's skin in the game one when there's none and i'm typically dumb when i don't have skin in the game he writes that in the book and i think most people operate that way when you have something on the line your mind operates differently and when you have nothing on the line you know you you're most people are dumb

What does that phrase, skin in the game, mean for the practical investor?

Skin in the game means that you have something on the line.

You have something to lose and you're going to operate know with much more integrity much more passion much more motivation when you have something to lose and that's what you want to see is that they have something to lose if they're wrong and there's countless examples of where ceos do not have skin in the game and you know it ends in catastrophe so i'll give you a prime example 2023 silicon valley bank went to zero Now, it's actually pretty rare for a company to go to zero while in the S&P 500.

But usually the S&P will kick them out.

But with Silicon Valley Bank, it happened so fast that it was in the index when it went to zero.

So if you owned S&P, you had exposure to Silicon Valley Bank.

But I looked at the proxy filing in 2023, the year it went bankrupt, and the ownership amongst the insiders was so low that it was represented by an asterisk.

So this is what happens when you have CEOs and leaders who own nothing of the organization.

What they aim for is hitting the ball out of the park and aiming for bonuses.

So they lever up the company, take chances that they otherwise would not have if they own a meaningful stake.

And, you know, when they're wrong, it goes to zero.

And in that case, that's what happened.

So what you want is meaningful ownership of companies that you invest in by the leaders.

So imagine, you know, investing in companies where leaders own nothing, you know, what they're motivated by.

is not creating value.

They're motivated by short-term metrics, hitting quarterly numbers and getting large bonuses, but not creating sustainable value.