Insider Ownership Beats Chasing Last Year’s Earnings

OWN Explainer Video:

https://youtu.be/MSD8Msi7qcY

The S&P 500 is supposed to be “the market,” but what if its biggest blind spot is the people actually running the companies? We bring on Haran Bakta, CFA, founder behind the OWN ETF, to walk through a different way to build an index: weight companies by insider ownership so leadership has real skin in the game. Along the way, we stay skeptical and press on the uncomfortable parts: when ownership helps, when it doesn’t, and how to avoid turning a smart idea into a cult of personality. 

We unpack why free-float adjusted indexes can behave in ways most investors never notice, including the strange reality that an index may effectively buy more of a company when a controlling insider sells or passes away. Haran explains the origin story, the painful work of collecting ownership data through years of proxy filings, and the rules behind the inside ownership index: starting from the S&P 500, selecting the top names by dollar value of insider ownership, and capping inputs to avoid a portfolio dominated by a handful of extreme holdings. 

From there we debate founders versus professional managers, culture versus control, and why last year’s earnings can be a misleading compass when innovation cycles shift fast, especially in technology and AI. We also cover performance claims, risk and drawdowns, the Sharpe ratio angle, fees and scaling, and why index construction matters as much as any headline narrative. If you care about index investing, corporate governance, founder-led companies, and long-term investing discipline, this conversation will give you a sharper framework and a few strong counterpoints to test it against. 

If this helped you think more clearly about incentives and leadership in your portfolio, subscribe, share the episode with a friend, and leave us a review. What’s your take: should insider ownership change how we index the market?

Straight Talk for All - Nonsense for None

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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.

Transcript

Welcome And Guest Setup

Steve Davenport 0:26

Hello, everybody, and welcome to Skeptic's Guide to Investing. I'm here with Clem Miller, and today we've got a special guest, Mr. Haran Bakta, CFA, is a founder of an ETF called Own, OWN. And Oan has the higher percent, the highest hundred companies with the percent ownership of insiders. And so what he believes and what he does is really that if companies are owned by the management, then management has a lot of incentive to make sure that they're creative, they're innovative, innovative, and they're they're doing things that are good for their own money, which is also good for investors' money. Tell me about how you got started with this and where the idea came from. And tell me where you are kind of on your journey. I think our investors would love to know.

Haren Bakta 1:22

Yeah, well, first of all, thank you for having me on. Um, so I've been in wealth management since 2010. Started at Merrill, then Morgan Stanley. Eventually in 2017, I started my own RIA. And in 2017 is when I really got into Warren Buffett and his philosophies. And I pretty much read everything

Buffett Spark And The Big Question

Haren Bakta 1:44

about Warren Buffett and I became a huge fan. I bought a lot of Berkshire shares for myself and for my clients. And , I've been attending his Berkshire meetings in Omaha since 2017. And in 2024, is where I actually thought of the idea of inside ownership index while sitting in the meeting. And this was the first meeting in 24 where Charlie Munger wasn't there because he had passed away. So it's kind of like in the back of my mind what am I gonna do with Berkshire when Warren Buffett dies? And halfway through the meeting, it clicked to me the SP 500 will actually be buying more Berkshire Hathaway when Warren Buffett dies or he sells. Why? Because the SP is what's called free-float adjusted, and they exclude controlling shareholders when they calculate the

Free Float Problem At Berkshire

Haren Bakta 2:42

size of Berkshire and any other company. So I just thought, who would want more Berkshire after Warren Buffett? We should want more with him there. In the same respect, we should want more Tesla, and we wouldn't want Tesla without Elon Musk or Meta without Mark Zuckerberg, right? These guys created the value of their companies through innovation or through capital allocation, and to you know, participate more so after they're gone didn't make sense to me. So I came back from home from Omaha, looked into you know, what if we could allocate the portfolio according to ownership rather than the free float? And I went looking for the ownership data, couldn't find it. So I went to Cap IQ, Bloomberg Terminals, Facts Set. I went everywhere. Nobody had ownership data going back that far. So I went manually through proxy filings for every 500 constituents in the SP for 20 years. So I I went manually

Building Ownership Data By Hand

Haren Bakta 3:50

through 20,000 different proxy filings and collected the data and eventually launched the index in partnership with the SP. So SP actually calculates and publishes the inside ownership index. And yeah, and as of last month, we have now the ETF owned OWN.

Steve Davenport 4:10

That's interesting. I I thought I'd have been around because I know the concept of ownership has been talked about, but right.

Speaker 4:17

No, no one had formally created an index and ETF around it. So what are your index rules? What are the starting universe is the SP 500? So we start there, and so you know the SP decides which 500 companies get in. Um, we like the methodology. We take the top 100 from the SP based on the dollar value of ownership and we cap

Index Rules And The 5% Cap

Speaker 4:47

the ownership at 5%. So, say for example, Larry Ellison owns 45% or 40% of Oracle, we count 5% at the max. What we don't want is a portfolio full of Dell and Oracle because the CEOs own so much. So, what we want is skin in the game. So, you know, if a CEO or or chairman of the board or someone owns, say, 5% of a $100 billion company, that's a lot of skin in the game. So we don't need to invest more into a company if they own more than 5%, essentially. Uh, what we want is to avoid companies. The the key is really avoiding the companies where there is no ownership. So I did a study of the biggest value destroyers of the SP 500 over the last five years. The five biggest value destroyers were PayPal, Adobe, , Disney, Comcast, and then there was a n ber six was Nike. So Nike, you know, Phil Knight just retired several years

When Ownership Leaves Value Breaks

Speaker 5:58

back, and he's he's completely off the board. So Nike doesn't have any ownership left in the company. And you can see the world-class brand of Nike down 70% from its high. And in fact, I think it's had like three or four consecutive years of down years. And what's interesting is like this is the biggest bull market in in history, and yet Nike stock is down 70% during that time frame. So, you know, I the when those responsible for the success of an organization leave the power of that organization changes for the worse, it erodes. The culture erodes, the brand erodes, and you know, you you you end up with what Nike has now. Look at Starbucks, same thing. Howard Schultz is completely gone from the company, and you see Starbucks struggling. And that happened twice with Starbucks. Uh, Howard Schultz left Starbucks, I believe, back in like 08, and they struggled, and then he came back and revived the company. And now again, he's gone, and and you see the stock and company struggling.

Steve Davenport 7:05

But you also see cases like Uber where a founder can have great founder skills in terms of being creative, but then when it comes to running the company quarterly and counting out the results and organizing and discipline, founders might be great at that startup stage, but not great in the operation stage. Absolutely. Isn't that kind of

Founders Versus Professional Managers

Steve Davenport 7:29

a like I love to have a guy with positive energy and innovation, but if you can't translate it into quarterly revenues and earnings, yeah, yeah.

Haren Bakta 7:39

So ownership is not is not the the panacea, but I could tell you it's a better constructed index than the SP, right? And and that's what we want. Basically, there was a study done by University of Arizona professor who looked at all stocks over the last hundred years, every single stock in the US. And what he discovered was just 4% of all stocks delivered all the wealth creation. The other 96% matched U.S. Treasury bills. So this is why indexes perform so well, is because they captured that 4%. They let the winners run. But what I discovered is so indexes investing is very power law driven, right? A few companies carry the index. But what I discovered is that the leaders within the organizations are even more power law driven. So you get these few exceptional leaders, and they create enormous shareholder value. So by weighting the portfolio according to the ownership, you get more, you get more of that power law. And we can look at I I went back a hundred years, in fact, , and looked at how organizations or which companies performed the the the best and which ones were the you know top 10 companies in in the US. And if you look at, for example, GM in the 30s, it was run by Alfred Sloan. And he ran the company. If you look at 1930, the biggest company in the world was GM. If you look at 1950, the biggest company again was GM. And during that whole time frame, it was run by Alfred Sloan. So this is what I mean by remove the person that the people that made the organization great, and you've removed what made it great. So Alfred Sloan retired in in I believe the 50s, and you know, GM has never come back to a top 10 and it probably never will. And if you look at the the biggest the most powerful company to ever exist was I believe IBM. And when I say powerful or dominant, I mean by relative size. IBM in 1984, peak IBM, was more than two and a half times, or at least two and a half times larger than the next largest company in the world. So this would be like Nvidia today being 12 trillion dollars. It was massive and dominant, relatively dominant. And a lot of people don't know this, but it was run by Thomas Watson Jr., the the son of the founder, Thomas Watson Sr. So you have Thomas Watson Jr. retired from the board in 1984, peak IBM. Fast forward just eight years after his retirement, IBM was not even the top 10. And today, IBM is not even, in fact, today IBM is down 20%, it's not even in the top 25. So this is what happens when those responsible for the success of an organization leave. It's not the same company. And that's what the inside ownership basically tracks. It's not necessarily about that ownership, it's about indexing to the leaders. And when those leaders are gone, , you know, it's not the same company.

Clem Miller 11:04

So I got two questions. Um, first question is you know, sometimes the today's ownership or effective control is carried out by, in effect, a manager, right, who has taken over from an original owner under the theory that, okay, the innovation stage, you know, might be, I don't know, I don't want to say over, but it's gotten through its early stages and now it needs a manager to keep things going. So like Apple is that a good thing for your theory, or does that kind of undermine your theory to some extent? So that's that's my that's my first question. My and my second question is , oh shoot, what it was my second well to start with that question first. Let's talk that one.

Haren Bakta 11:55

So Mark Andrewson, you know, the the venture capital guy said it said it the best. He said, you know, if the car is the car is the car, then you know the professional manager is gonna be able to run the company good. But when things change, when the world is changing, you need an innovator, you need someone that can adapt with the world. And , you know, this is why, for example, Elon Musk, you know, created the electric car when no other company could. Yet he's made all his patents open source, and yet all these other car companies still can't create an effective electric car is the the way Tesla did. Or, you know, for a hundred years, , the rocket industry would, you know, rockets would launch up in the air and you know, fall back in the ocean, and you know, they were not reused. Then Elon Musk comes along and says, Hey, what if we just reuse these rockets and land them on their butts? And you know, so managers think completely with that within the box, in the box they're given. Is Tim Cook a manager or is he an innovator? No, Tim Cook is a manager and he's an effective one. Um, you know, I Apple has not innovated anything beyond the iPhone, and they've done a great job. Uh you know, they've done a great job making the iPhone better and supply chains and whatnot, but they have not created anything new, and the world is changing fast. And with AI, they're again not investing any capital into AI. So when the world changes away from what's known as a cell phone now, I mean, I'm sure we're gonna have some kind of device, but it may not be exactly what a cell phone is today. Apple's probably not gonna be the one to create that. Well, all when things change, for example, ATT was also one of the most dominant companies in the world. That was a government-regulated monopoly, right? The cell phones came outside of that industry, outside of that subset. So , you know, when things change, it it's it's done by owners.

Clem Miller 14:05

Right. My second question, which is kind of related to the first one, is you know, it strikes me that there's kind of a life, well,

Innovation Cycles And Intel Versus Nvidia

Clem Miller 14:31

we all know there's a life cycle in innovation in general. Uh, is there a life cycle in the innovative owner? I mean, should you be focusing on innovators who are you know relatively early in their innovation lifestyle and life cycle, and not necessarily you know Warren Buffett who's in his 90s?

Haren Bakta 14:57

Yeah, well, for one, the the index I created is based on the SP 500. And you know, most companies in the SP 500 are you know, yeah, they're not in the early stages, right? Yeah. Um, you know, you know, maybe SpaceX, you you could argue, is in the early stages. Tesla is, you know, in some parts of the business, they are in the early stages as well, with with with robots. Um, but I think in the early stages it's more about the founder than than anything else. Uh in the later stages, it's it's it's it's about both. It's about the business itself, the economics of the business or the industry, plus plus leadership. But I think I argue that that people, investors, have been focused too much on last year's earnings and not enough on who's leading the company. And the best example I have is, for example, Intel and NVIDIA. So in July of 2020, they were identical companies, they were both $250 billion and both chip designers, right? In fact, in July of 2020, Intel had seven times the revenue, seven times the profits of NVIDIA. It had a higher return on equity and a higher free cash flow yield. Um, but NVIDIA had something Intel didn't. It had an owner, a guy who went to bed thinking about it, right? Fast forward six years, Intel has underperformed the market. Nvidia's up more than 2,000 percent. And this is what I mean by , you know, focusing too much on last year's earnings versus really what the business is and what the what the leadership has done in the past and what they're capable of.

Steve Davenport 16:50

Yeah, when we look at advice or we look at educating investors, one of the things we emphasize is taking a longer time horizon, being patient, believing in management, and believing in the direction the company is taking is going to be a good direction. We think people need to step away from the short-termism. We believe you need to step away from what the media is saying. The media is not helping. Exactly. The media wants you to buy SpaceX, even though, as I said, you know, if if if Musk owns 88% of the control and can't be fired, I think your point about ownership is good to a point, right? If I have a company that's 100% owned by

Long Horizon Thinking Over Headlines

Steve Davenport 17:40

one insider, I have to ask the question, you know, that's an extreme case, but what's gonna motivate the guy on the floor? What's gonna motivate the manager of you know operations? What's good if he's if he's not willing to share that equity, then I think you have a different result. I think you have a more controlled and a limited growth prospect.

Haren Bakta 18:03

Absolutely. Well, employees of SpaceX, for example, are the owners of SpaceX, right? It's not just Musk, but but the employees at SpaceX got enormously wealthy by by being owners of SpaceX. And so they're motivated. Uh, yeah, Elon Musk does own a lot of SpaceX. Um, but I think what we're gonna see is as the floodgates open pretty soon, we're gonna see a lot of employees access the markets. And you know, for example, my uncle worked 17 years at NVIDIA and he came out pretty wealthy. He came out doing really well. Um, but what he told me was that he outperformed all his other employees because all the other employees sold along the way and he just held. And that you know brings up the point of SpaceX. So, SpaceX, all the employees were fortunate that SpaceX was not public. Had it been public, they would have accessed the market a long time ago. And , you know, they got lucky that it was private, and now that it's public, I think in a massive way, SpaceX employees are going to be accessing the public markets and getting that liquidity they've never had before. So I'm very thankful the SP, which is my starting universe, waited a year or was waiting a year to include SpaceX. I didn't I didn't want SpaceX in the inside ownership index until it's had a chance to establish a reasonable price within the market after employees have have been able to unload the the the parts that they wanted to.

Steve Davenport 19:48

I really like your concept and I really like your thoughtfulness, and I agree with you that it would have been a tragedy to add SpaceX you know when it's only got 20 billion in revenue and no earnings. I think it's smart. I think the SP did a good thing for it itself, and I think it did a good thing for its investors. Can you kind of describe to me what do you think the right allocation is to a strategy like this? If we have a typical investor who has a core, he might have some growth, he might have some value, might have some international. Where does OWN the ticker fit for the average investor?

Haren Bakta 20:28

I think it fits as part of the core. So I'm a big proponent of, or I used to be as a when I was an advisor, I used to love the core satellite approach. So having a core and then building some alpha potential alpha generators around it, but the core would be a solid base of ETFs. Now, one thing I'll note I'll I'll note here is that we went back 20 years for the Own index, right? And it's not some complicated back test, it's just simply allocating the constituents based on the ownership.

Where OWN Fits In Portfolios

Haren Bakta 21:03

So it's a very simple calculation. Um it's more concentrated than the SP, therefore it moves up and down more than maybe the SP does. But I'll note that the two catastrophic events we've had in the last 20 years in 2008 and COVID-19, those two big drawdowns, the the own or the inside ownership companies went down less than the SP 500 did. And that's because when the world is really going wrong, high ownership companies are run better, they have better balance sheets, they innovate more, they can adapt more, and they even have access to capital. For example, Elon Musk has sent a test a text to Larry Ellison or something, and you know, get access to capital. So these companies have more access to capital, more innovative, better balance sheets, and they are more resilient to major downturns. So I would allocate own as part of the core.

Steve Davenport 22:10

If I if I could you just help me understand how it works with a company like Walmart? So Walmart has different family members on the board, I believe.

Haren Bakta 22:19

And it has Walmart is a heavy insider ownership company. Uh Rob Walton and one of who's got the CEO, right? Or Rob Walton is not the CEO, but he's the son of Sam Walton, the founder. And up until about I think like a year ago, Rob Walton actually resigned as the chairman. But his son, , the third generation now is part of the board of Walmart. Walmart is still family owned, 40% ownership. So that is a you don't need a founder. What you need is ownership. You need the culture to

Ownership Preserves Culture Over Time

Haren Bakta 23:00

remain intact. And the only way a culture could survive the long term is when ownership is intact. And I'll give you an example, okay? I think with a Costco, a buyer found a pair of jeans, found a bulk order of jeans, I think at like a 40% discount when I think everyone customers were paying, say, $20 for jeans. They found a bulk order of jeans for like four dollars. And what the buyer insisted to a sole price was you know, why don't we sell these jeans at the same $20 price and collect a profit? And sell price said no. He said, our culture is that we only mark up the inventory at 15%. So they sold those jeans at a deep discount when the customer would not have known. But it's that culture of ownership gets maintained when there's owners, right? When you're a CEO and you're judged quarterly and you have quarterly bonuses to hit, you're gonna take that early profit by selling those genes at the marked up price. You know what I mean?

Steve Davenport 24:18

So culture, isn't this really a culture question and not a control question? And I think some of these things you're mentioning, I I mean, I could see insiders look there the they are great creators of value. And I guess I'd go back to that four percent group that you identified for the last hundred years. Is there anything else about those companies that are in that four percent that you can like did they end up having market caps that started in the mid-cap and small large cap? Did they well?

Haren Bakta 24:53

Yeah, so I I did a study of a hundred baggers. So a hundred baggers, a a stock that went up 100 times your initial investment. So $10,000 would turn into a million. And I looked at I found 21 of those between the year 2000 and 2025. So from Monster, Netflix, Tractor Supply, NVIDIA, Amazon, Google. So all these companies turned at least $10,000 into at least a million. And I only found one common theme. All of them, except for two, Apple and Fike Wysac. Surprisingly, Steve Jobs has sold sold out of Apple like two times throughout his whole career. He he didn't have a huge ownership of Apple, despite being the founder. Um, but

The Hundred Bagger Ownership Pattern

Haren Bakta 25:47

19 of the 21 all had ownership of at least five percent starting before going on that hundred bagger run. And now ownership is not in does it does not ensure you're gonna have these massive outlier returns, but it is the starting place, and that's the only common theme I saw. They were not all founder-led, they were not all owned by the CEO, but someone on that board or executive team had that large ownership. Okay, supply being being you know one of the key ones where that that's a very old company, but somehow ownership was maintained at the board level.

Steve Davenport 26:34

Do you look at your group and say, okay, you know, when I look back for 20 years of Own, I see that the multiple that Own is selling for today is 25 times earnings. And the typical ownership, you know, multiple is 14. It's actually less volatile or less risky or less expensive than names most of the time, because some people view ownership by insiders as somewhat a stagnant item, right? If you feel like, hey, this has had the same ownership group, they're they're not making significant changes as we would expect. I mean, do you do you look at today's price? If I was to tell investors, hey, I believe this is

Valuation, Growth Tilt, And The Future

Steve Davenport 27:24

a great company and we should all be owning it, the CTF. But I guess I'm asking for a little perspective because I don't have that much trading history to look at. Can you help us understand how Own sits today, price-wise, value-wise, and and maybe Clem likes to look at how much short interest there is in the names, and that's a variable that tells him people aren't against it. And if people aren't against it, it's got more inclination for upside, right?

Haren Bakta 27:56

Yeah, well, the constituents inside Own are SP 500 constituents, so they're not like huge short interest type stocks, but own I would I would say is closer to a growth index or passive strategy than maybe a value-oriented one. Um, it probably has slightly higher PE ratio than maybe the SP 500 simply because founder-led or high ownership companies are more growthier. So, for example, Tesla, Amazon, Meta, Nvidia, these companies are more growth-oriented. And then you have companies like Intel, IBM, 3M, Boeing, where you know there's no owners left in the company, and they may be more value-oriented stocks. Uh, but as I mentioned, you know, in July of 2020, , Intel and NVIDIA, Intel was a clear value play with seven times the as the same market cap, but seven times the revenue, seven times the profits. Um, but like I mentioned, I think people are paying too much attention to last year's earnings when what they should be focused on is is you know the type of innovation that the company is working on and what they're capable of and what leadership is really capable of. Um, I don't see IBM or Intel or 3M creating anything new in you know in this new world of AI. Uh they're just not going to be participating in the future growth. And when you buy a stock, that's what you're really paying for, right? When you pay for a stock, you're paying for the future. And , you know, sometimes you can look to the past to know what the futures holds. Um, but with with the world that's changing now, , at the speed of innovation, and and I think last year's earnings are less representative of what earnings are going to look like five years from now.

Steve Davenport 30:06

Yeah, we like to use the peg ratio and so price to earnings and then the growth rate. And I guess if have you guys looked at well, these companies tend to have better five-year growth than three-year growth. Or is there any other characteristic you can point to besides like if we were to do a secondary sort of all these names that are in well, sharp ratio is a very good ratio.

Haren Bakta 30:31

So, what that tells you is sharp ratio tells you , you know, how risky the portfolio is relative to the return it's produced. So, are you being paid for that additional volatility? And the own or inside ownership index has a higher sharp ratio than the SP. So essentially, while it's been more volatile, you also got paid more for that volatility. Additionally, as I mentioned in 2020 and 20 2008, during those two global catastrophic events, , we were actually not more volatile. We we went down less so than SP. So it's like , you know, using ownership,

Sharpe Ratio And Downturn Resilience

Haren Bakta 31:21

I think you could expect that when the real the world really collapses, like something significant. I don't mean just volatility like like a tariff tantr or 2022. I'm talking about something significant. Um I think we could expect these high ownership companies to to hold up better.

Steve Davenport 31:44

Clem, I know you have to drop. Did you want to ask something before you leave?

Clem Miller 31:50

Um no, I'm just looking up what's available here online about the fund. Um so 0.49 percent. So you got expense ratio, so you got to you know, you have to tell a good story relative to the SP 500. And the stocks are you know, are largely what you would expect in terms of a growth stock portfolio. That's right. That's right.

Haren Bakta 32:19

That's right. So as we get AUM, I plan to bring these fees, these expense ratio down. Um my goal is to compete head to head with you know Vanguard and BlackRock and S P 500 funds that that charge you know maybe nine basis points. Um,

Fees, Scaling, And Index Construction

Haren Bakta 32:40

but you know, again, we've had better performance. And I, you know, we are going through proxy filings and capturing inside ownership data. So it is a a costly thing for me to do right now. So we we are charging 49 basis points, but again, we plan to bring that down as we scale up and eventually I think we could have hundreds of billions of dollars because it is a better constructed index than the SP. Think about that. So we're on the same side of the table as the best innovators in the world. Um, the SP, you're on the opposite side of the table, as I mentioned, when when Warren Buffett dies or Elon Musk. Um, say the government told Elon Musk, you know, you have to pick between Tesla and SpaceX. And he decided to sell all of Tesla and focus on SpaceX. The SP would be buying more Tesla because the market cap would be expanded to include the 20% that he owns.

Clem Miller 33:45

Yeah, well, that's the problem with anything that's automatically constructed. I mean, it the construction is what really matters when you're talking about something that's automatically constructed.

Haren Bakta 33:57

Yeah, yeah. Well, we are all automatically constructed, we are a passive index as well, right? Yeah, we're right, we're we're indexing to the leaders, but it has a little bit more intelligence built into it. Yeah, yeah, yeah.

Steve Davenport 34:08

Well, yeah, I mean, but you could have, I mean, it it almost felt arbitrary why the SP decided to wait.

Haren Bakta 34:14

It's like you know, the SP wasn't always free float adjusted. Uh basically my index proves that free float adjusting is a mistake because you're excluding the most important people in the calculation. And the SP started free floating in 2005. Um, it's a good in theory because what they're indexing is the the part of the shares that are actually accessible to the market. But what we care about is performance. We care about you know capturing more of these outlier type companies versus the SP really cares about making it more investable to you know everybody on the planet.

Clem Miller 34:55

There is a certain logic to that because like if you take emerging markets, for example, if it weren't free-floating, you'd have the entire Chinese government ownership.

Speaker 35:04

Exactly, exactly.

Clem Miller 35:06

I gotta go. Yeah, okay, nice to have you, and and it was a great discussion, and look forward to talking again. Okay, awesome, thank you.

Steve Davenport 35:19

Um, so I think Haran, that you know, you've given us a lot to think about and a lot of good ideas, and I guess I would like to figure out how we can be helpful to you in terms of getting the information and the education. You know, do you have some back testing that you want to put on our podcast, or do you have some materials that you think would be appropriate for people to understand it better? I mean, I think I understand it, but I'm I'm thinking about my you know my listeners.

Haren Bakta 35:54

Yeah, well, I have a two-minute explainer video. Uh we could either attach that to the podcast when it goes live, or I mean I could play here. What do you recommend?

Steve Davenport 36:08

Um,

Zoo CEOs And Wild Owner Operators

Steve Davenport 36:09

why don't you play it now? Oh, I can play it now that way I can include it because I think that adding it as a link seems like it might yeah, I could definitely play the video now.

Haren Bakta 36:24

I'm pulling it up now on on YouTube.

Steve Davenport 36:28

I guess , and this is a little bit unusual, but Aaron, what what do you think are questions that I haven't asked that you've been asked before that will be good for our listeners to understand what you're doing?

Haren Bakta 36:42

Uh well I can't think of any questions, but what I I do have an analogy that I didn't get to say that I'll say now. And that analogy is I like to call a hired CEO who basically doesn't own any shares. I like to call them a zoo animal. Now, a zoo animal gets fed every day in the same way a hired CEO gets their base salary. Um, you know, whether the the animal, zoo animal successfully hunts or not, it gets fed, right? In the same way the hired CEO gets the base salary, quarterly bonus, and very often a golden parachute. I like to call the owner operator CEO a wild animal. They're trained to survive, they've already proven that they can create value in this world. And when they don't successfully hunt or innovate, they feel the pain, they starve. And that's the difference between NVIDIA and Intel. You know, NVIDIA had a wild lion as a CEO, and Intel didn't. So I think investing more so in these lions, , you're gonna get better long-term returns. And I'd like to add something else, actually. Uh, you know, the people who made significant wealth investing in, say, Berkshire Hathaway or or let's say Tesla, they were not the ones that understood financial statements or or PE ratio so much. No, the investors who made billions investing in Berkshire trusted Warren Buffett and held, and the same with Tesla shareholders, they trusted Elon and held when the whole world was saying it's overvalued, and , you know, Elon Musk is a terrible leader, and no, they trusted his mission and held, and those are the ones who really came out wealthy. So I'll I'll say it it comes down to more finding the right leaders and then just trusting them and holding. Okay, I'm gonna share my screen and I have a two-minute video which I'll play.

Steve Davenport 39:01

Yeah, the only thing I'd say to that is the Enron's

Charisma Risk And Active Picking

Steve Davenport 39:04

and the some of the companies that have had you know what I'll call malicious and you know illegal actions. I mean, they kept telling people just hold on, just hold on. And in reality, there wasn't any there there. So definitely I think there is a certain degree of the charismatic leader, but there's also a certain amount of you know people who are in situations that could lead you down. Um, but I agree, there's some great information.

Haren Bakta 39:38

So so for active stock pickers, I'm not saying that ownership is the only factor you look at. What I will say is if you're actively picking stocks, that ownership is a is a massive green flag. Correct. I agree. Okay, okay, so can you see the screen?

Steve Davenport 39:59

Um it's starting to come up. There's a blue guy sitting down to us. Yeah, that's him.

Haren Bakta 40:10

Yeah, yeah. Uh I don't hear vol e. Let me try something else.

Steve Davenport 40:55

Why don't you say something while we can we'll try to add a link to this video in our notes. Um we usually put a link to some company's website, but in this case we'll put a link to the website for OM and also to to this video. So I think that you know overall, , I think this is very interesting. Um one question I have is when you looked at this when you were creating it, how much value add do you anticipate having over like an SP 500 index over a long period of time?

Haren Bakta 41:35

Well, I think we we should outperform the SP by about two and a half percent per year, which is kind of what we've been averaging for that two for that 20-year period that we went back. We outperformed the SP by two and a half percent per year. C ulatively, for that 20 20-year period, it was more than 300

Expected Outperformance And Closing Ask

Haren Bakta 41:54

percent. We outperformed the SP. So $10,000 invested in the SP in 2005, today would be around, or by 2000 end of 2025, it would have been around 75,000. In the inside ownership 100, it would have been 110,000. So it significantly outperformed the SP over that over that 20-year period. Uh okay, so I I have maybe this will work. Let's try it. Okay, I'm not sure why. Uh let's skip that. We'll just attach the the the video to we'll attach the video to the link.

Steve Davenport 42:51

Just send me the link and I'll add it when I when I put the video off. Okay. Aaron, I I really appreciate your time today. I really think it was a good I mean, I know we've been a little bit skeptical of what we're you know, but we have to treat every guest the same kind of with and that's what Clem and I have seen a lot of things with FTX and Madoff and some other things. And we just want to, you know, constantly be wary about when some people say they have, you know, the solution. I think you might have a very good solution here, and I like it. Um so I think you should be very proud of what you created. And , I'm excited about it, and I'd love to check in with you again. Maybe you come back in a year and we can talk about how it's rolled out. Absolutely, I would love that. All right, all right. Thanks for joining us today, Aaron. And , thanks all the listeners for coming. And we appreciate what you're doing, and we want to keep doing what makes you happy. So, listeners, please send us a DM, send us an email, , give us some likes and shares, and we'll continue to try to add value and improve your investing IQ.