[music]
>> Uh, welcome Haren back to um
from Inside Ownership Index on the
podcast today. I'm actually quite
excited about this. Uh, it's a financial
product.
But what is the thesis behind it, Haren?
And please give a introduction to
yourself.
>> Yeah, I'm I'm Haren, the CEO and founder
of Inside Ownership Index.
You know, we launched an ETF. The ETF is
essentially buying
companies where leadership have
alignment with shareholders and they
have that alignment because they're
significant owners of the business
itself.
And basically, we created an index
based on the ownership of insiders.
And tracking the performance of those
shares.
>> Amazing. And what made you
want to create this? And I believe there
is some research behind this as well,
right?
>> Yeah, I put out a lot of research on
this. And now, I wanted to create this
um because I thought of the idea while
sitting in the Berkshire annual meeting,
which Warren Buffett has been doing
every year in Omaha.
And I've became a big fan boy of of
Warren and Charlie. And I've attended
every meeting since 2017.
And I put a lot of my own money and my
clients' money in Berkshire Hathaway.
And in 2024, where I thought of the idea
while sitting at the meeting,
I
was sitting there kind of afraid
because that was the first meeting
Charlie Munger wasn't there. He had
passed away. And I was afraid,
you know, what am I going to do with my
shares when Warren Buffett passes away?
I don't believe in the company in the
same way without him. I bought the
company because or about shares in the
company because of that trust in him.
So,
while I'm sitting there in the back of
my mind with this fear
of what am I going to do,
at some point it clicked in me that
the S&P 500 will buy more Berkshire when
Warren Buffett dies.
And I just thought, wait, why would
anyone want Berkshire Hathaway or who
would want more of it after Warren
Buffett? We should want more while he's
alive. Same goes with Tesla. Who would
want more Tesla without Elon Musk?
Who you know, we should want more Tesla
while he's there. I don't think anyone
would want Tesla without Elon Musk. And
then you have Meta. Who would want Meta
without Mark Zuckerberg, right? So, this
process the S&P does is called free
float adjusting. They exclude the shares
held by controlling shareholders and
when they retire, sell, die,
those shares become what's called free
floating and then they expand
the calculation
for
uh their ownership. Basically, after
they they sell or die or or retire. And
this
is the opposite direction of what anyone
would want. We want more of these
companies while they're there and less
so when they're gone.
And uh so, I came home from Omaha and
looked into this,
you know, what if we weighted the
portfolio according to their ownership?
Would we have outperformed? And
I could not find the inside ownership
data anywhere. I went to all the data
providers. I went to Capital IQ,
Bloomberg, FactSet, everyone. Nobody had
it. Now, the data's there in the proxy
filings.
So, I had to manually go through 20
years of all 500 constituents of the S&P
to get this data. It was about 20,000
different proxy filings manually and
aggregated this data. The data's there,
just no one had aggregated it. So, I'm
currently the only one with this inside
ownership
data going back back that far.
>> Interesting.
>> Yeah.
>> Yeah, and and
how so so the idea obviously is to have
something that's sustainable and
performs,
right? And and gives you a yield.
>> That's right. Now, index funds, academia
got it
uh half correct. They they said, "Well,
we should just be buying low-cost index
funds." And they index to the
corporation. Now, I
figured out something a little bit more
unique that's actually better. We should
be indexing
to the leaders of the organization
rather than the corporations themselves.
Corporations, all they are is a group of
people, right? We can't
we can't just um interchangeably change
people out of an organization and call
that organization the same.
So, that that that's actually a thought
experiment I ask people is imagine a
very successful company run by very
successful leaders. Now,
overnight, let's change that
that organization. Let's Let's change
the leaders to new leaders, all new
leaders. Let's keep the logo the same,
the the building the same, but let's
change out all the leaders of the
organization. Would you call that the
same company?
You know, and most people would say no,
right?
>> Now, how does it work when somebody
leaves the company and they sell their
shares? Does Does
Do you have to go and recalculate and
reaggregate all that data?
>> Right. So, we don't have to go back in
the previous quarters, but every quarter
we're we're rebalancing. So, we go
through the proxy filings
if there are any for each company
um for all 500 companies that rebalance
the portfolio based on current
reported ownership.
>> Interesting.
>> Yeah. And most of the time like large
positions can leave the portfolio.
Um most of the time that happens because
of uh death
or retirement. Most of these
um CEOs and and chairman of the boards
type roles where they have all the
ownership
they usually don't sell their entire
stake or sell large
parts of it. What they do is retire or
die and then they are no longer insiders
that no longer overseeing the culture of
the company
and then we rotate out of those
companies through through the rebalance.
>> So, you've gone live on the New York
Stock Exchange now.
>> That's right. The ETF is now live. The
ticker symbol is OWN.
>> That's amazing. How did you get that?
>> Yeah, I was shocked that it wasn't
available. I'm I'm I'm really happy. We
were
looking around uh for ticker symbols
and OWN just made perfect sense and we
were shocked that it was available and
and very happy about that. I think it it
adds to our brand.
>> Very cool. And so, I also saw some news
with Corgi. What What What was that?
>> So, Corgi we partnered with Corgi to
launch this ETF. Now, Corgi is an AI
financial company. They are really
disrupting the entire space for
financial services. Now, their primary
business is insurance. Now, all
insurance is
is
a long document, right? It's a
100-page
piece of paper with
um natural language on it. Now,
the technology exists
to write these documents and to read
them.
Now, which didn't exist before. Now,
insurance has largely been done by
humans.
Even the calculation of premiums, to
this day, most insurance companies are
using an actuary that uses a pen and
paper, not even not even software. Now,
now the technology with AI exists to
read these documents and and uh rewrite
them
when necessary. So, they
bought an insurance company and are
replacing all the humans involved with
AI agents.
>> Mhm.
>> That communicate with each other, and
they're able to offer insurance to the
end
um insured
much cheaper than any other company
because they're leveraging AI more
aggressively than any any other company
is, right? Most companies get ingrained
in a way of doing business, and they're
not able to adapt. And that's why new
businesses always come and overtake
overtake the incumbents, right? I mean,
if we just look at the S&P 500, look at
the largest companies in the world.
They're most They all come from the US,
for one, but they were all founded in
our lifetime or near it.
So,
you know, all the the competitive
advantages some legacy companies have,
but it's always new companies that come
up and dominate. Now, we're going to
have three IPOs that are going to
um be completely new companies as well.
As SpaceX which was founded
um you know, after the year 2000 and
Anthropic and Open AI all all pretty
much new companies. So,
you know, this is how
the world has always been where it's new
companies that come out and overtake the
old and is is done by owners.
>> So, yeah, you don't hear much more about
IBM and and and players like that
anymore, right? Like so
>> Right. Actually have a great example
with IBM IBM.
Now,
I asked people to you know, what is the
most dominant company to ever exist?
And to me that answer's IBM. IBM
And when I say dominant, I I I mean by
relative size. So, IBM in the year 1984
was more than two times large almost two
and a half times larger than the next
largest company in the entire world. So,
this would be like Nvidia today being
$12 trillion.
It was dominant and no one could
compete. Now,
a lot of people don't know the history
of management at IBM, but Thomas Watson
Sr. was the founder of IBM 1911. Long
time ago, but it was actually his son,
Thomas Watson Jr., that took IBM public.
And the service CEO in the '70s.
Now 1984
he was on the board. So, the ownership
was there overseeing the company. 1984
peak IBM.
He retires in 1984 and by 1992,
just eight years later, IBM is not even
in the top 10.
Today, IBM is not even in the top 25.
This is what happens when those
responsible for the success of an
organization leave.
>> So, this kind of proves your thesis,
really.
>> Exactly. Exactly. So,
um monopolies get built by owners, and
they slowly erode once they're gone.
>> Interesting. So, what kind of companies
make your list, Taren? Um tell me about
some of them, and what numbers are we
talking about here?
>> Yes, so we're the essentially the S&P
500
with the skin in the game factor. So, we
re-weight the S&P 500 based on ownership
by the leaders. So, the companies
in the index are exactly the same, but
we take the top 100 from the S&P 500.
So,
it is going to be the same constituents
as the S&P, but re-weighted. Now, we're
going to have more concentration.
Now, indexing, what it does
is it gives you exposure to the largest
companies, and it doesn't sell.
So, this is why that the index funds do
so well is because they don't sell the
the winners, and they let them run.
Now,
the winners are actually more
individuals in the companies themselves.
If you look at the average company,
and look at the extreme winners, like
Nvidia Apple
uh Google, Amazon, Tesla, right? There's
there's a big difference between average
and great, but now look at the average
leader,
and compare them to the greatest
leaders. That difference is much larger.
The power law is significant. So, when
we index to the leaders, we get more
exposure to the the extreme right tail
of the distribution. We get much higher
uh returns by indexing to the leaders.
>> So so interesting. So this is this is a
lot this isn't a here's a full global
list of companies and find the ones that
have the most uh public ownership or or
ownership. It it's it's like let's take
the subset of the S&P
and then within that let's re-weight on
the S&P
and rank them there and
I guess the idea is to beat the S&P?
>> Yes, that's the idea. Over time. Now,
this is a long-term finding. Now, it
doesn't outperform the S&P every year.
It doesn't perform it outperform every
month but
what we see is that over long periods of
time these extreme winners
come out of owner-led
companies. And um I did a study recently
where I looked at uh a term called 100
bagger. 100 bagger means that a stock
went up 100 times your initial
investment. So you would invest $10,000,
it becomes over a million. Now this I
found between the year 2000 to to 2025,
I found 21 of them.
And I looked at all 21 of them what they
look like before they went on that
100 bagger journey.
And
all
but two. So 19 of the 21
had one thing in common.
They all had ownership
above 5%.
>> Uh-huh.
>> By the insiders. So insiders own
significant stakes in the companies that
had those huge outlier returns. Now,
they were not all founder-led.
They were not
um
it was not even necessarily by the CEO.
And it
they weren't necessarily new companies
either. Some like Tractor Supply, they
were very old companies not run by
founders, but there was significant
ownership by the leaders.
Berkshire Hathaway, for example,
it's not a hundred bagger over the last
20 years, but it is
like a you know, more than 10,000 bagger
over the last
55 years. Um
that Warren Buffett is not the founder
of Berkshire. He he took control in
1965. So, it doesn't have to be a
founder. Howard Schultz is not the
founder of Starbucks. He He bought
Starbucks when it had 11 stores. So,
what we're looking for is owners,
owner-operators.
And you know,
the main reason why ownership matters is
the culture of the company remains
intact. They can think long-term. If
[snorts] there's no ownership, they're
almost forced to think quarterly and
long-term value creation is done in
thinking in decades, not in quarterly
thinking. In fact, very often these CEOs
that are creating enormous value make
the company look less desirable in the
near term. For example, Jeff Bezos at
Amazon didn't show profit for a long
time at Amazon. But he didn't care. He
knew he was investing in something
that's going to create enormous value.
And um by doing that, you actually
give value to your customers first. So,
an
extreme customer-centric company where
you distribute a lot of your profits
back to your customers. A lot of people
don't talk about this, but that's what
Amazon did, and that's what Costco did
as well, where you're constantly
figuring out ways to give profits back
to your customers in the form of lower
prices
or or better services. So, uh companies
with
no ownership, they're judged quarterly
and they think quarterly, so they don't
do these steps
to
that make the company look worse, but
but long-term better.
>> I don't know if you know off the top of
your head, but um I just saw
uh some price increases from Microsoft
and Apple on their hardware because of
memory prices.
I wonder what their inside ownership
percentages are like.
>> That's a great example, so those two
will For one, Apple is the one example
that has continued to do well despite
a large part of the ownership leaving.
Now, Steve Jobs passed away,
um but I'll note that Tim Cook and
another guy named Art Levinson,
the chairman of the board of Apple, they
own significant parts of Apple, so
they're long-time employees who have
developed ownership. So, Apple is in and
has been in the inside ownership index.
So,
but despite Steve Jobs, they've been
able to maintain their competitive
advantage,
but I'll note one thing that
they have not invested in the future.
They've only leveraged the iPhone. They
They're not investing in AI,
and they're not
participating in any kind of
uh future investment.
They're not preparing for disruption,
essentially. They're They're going to be
outside the system once the disruptions
happen
in the cell phone space.
Perfect example I have of that is like
AT&T. Now, AT&T had a
government-regulated monopoly
in the '70s. It was the largest company
in the world. And when you have
monopolies that are built around
government regulation,
um innovation comes from outside the
system. So, the cell phone was invented
outside of AT&T and the telephone
system.
So,
when a disruption takes place with Apple
in the cell phone space,
I don't know when, but there will be a
disruption at some point. Now, it's
probably going to come from outside of
Apple.
They won't replace the iPhone.
>> Yeah.
>> Um somebody else will.
>> Now, how does
how does the I'm just going back to
something that you said previously just
because
it's it's it's stirring a a question
that I have, but like how does
getting outsize returns from 100 baggers
how does the Inside Ownership Index
leverage that? Like, how does it
Yeah.
>> Well, for one, now these outsize returns
have come from owner-operated companies,
right?
>> Right.
>> So, for example, the largest company in
the world now is Nvidia, an
owner-operated company. Right? Um if we
look back at 2018 and we try to predict
which company is going to overtake
Microsoft and Apple,
now,
you know,
it would have been hard to guess, but I
could have told you
with almost a surety that it was going
to come from an owner-operated company.
>> Okay.
>> So,
so the index overweights
essentially companies run by owners
because we're tracking
ownership.
>> Within the S&P?
>> Within the S&P. So, the largest
companies in the world will always
eventually be
owner-operated. So, now, whoever
replaces Nvidia
someday,
most likely,
I'm very confident that's going to come
from an owner-operated company.
>> Okay. So, obviously you're you're
hanging your hat here on the human
angle, which I totally get. Um
it's alignment of incentives. Humans are
incredibly
uh
ingenious people. Um,
now what happens on the outs downside?
Like we are human and we can make
mistakes. Uh,
is there
a downside risk
for it being
>> That's a great question. Now, I did a
study also. Now,
I looked at S&P 500
over the last 5 years and I looked to
see who were the biggest value
destroyers.
So, it's funny how the the the largest
outliers came from high ownership
companies and
the study I did with the the largest
value destroyers,
the top five all come from companies
with very little inside ownership. So,
the number one
value destroyer
was PayPal.
PayPal was founded by Elon Musk, but
he's no longer part of the company, so
um
PayPal Comcast Disney
even Nike was one of the biggest value
destroyers in the S&P.
You know, Phil Knight, the founder of
Nike, is no longer part of the company.
So, again, this is what happens when
those responsible for the success of an
organization leave, the companies
typically go through a decay and slowly
erode. It's not It's not overnight, but
you know, Nike stock I think is down
4 years in a row,
three to four years in a row. It's down
70%
and it's down 70% in in the largest bull
market in history. So, we have a company
a world-class brand like Nike should not
be down in a 5-year bull market or
6-year bull market in in what we've
experienced since COVID. I I
this is the largest run in history, and
yet Nike, a world-class brand, is down
70%.
>> Wow.
>> So,
the best analogy I have
is
what I call a hired CEO.
I like to compare them to a zoo lion.
A zoo lion gets fed every day whether
it's successfully hunts or not.
In the same way, a hired CEO gets their
base salary,
quarterly bonus,
and very often a golden parachute.
So,
I like to compare a hired, I'm sorry, a
owner-operator CEO
a wild lion. Now, they're trained to
survive. They're already proven they can
survive in the world,
right? They created the very success of
their organization, and
um if they make mistakes,
they don't eat. They feel the pain, and
that's what you want in a CEO. You want
them to feel the pain of mistakes. And
when you have a hired CEO, they get
ingrained in into a way of thinking, and
they don't feel the pain until it's too
late.
You know, one example I have is uh
Blockbuster. So, Blockbuster had a zoo
lion as a CEO,
and they saw,
you know, these late fees in DVD
rentals, and they thought, well, you
know, we don't want to get rid of these
late fees cuz we make so much money from
it. So, they suppress
innovation. They suppress what the
customers desire.
And when you have owners who are more
like artisans, owners are like artisans.
They care
deeply about the customer, and they're
figuring out ways to give value to them,
and not just profits.
And that's what creates long-term value
is obsessing over the customer.
>> And I I would assume like even when
times are good,
like the zoo CEO would kind of rest on
his laurels where maybe they like the
the the wild CEO would just kind of like
double down or take more risk during the
good times type of thing, right?
>> Exactly. Someone had brought up to me
recently that the Kodak, for example,
they invented
the digital camera.
Believe it or not, but they suppressed
it because the zoo lion
was making too much money from film. So,
they suppressed that innovation that
they actually developed.
So, they could have been the leader in
in
um, you know, the digital camera space.
>> Yeah.
>> And, you know, they essentially went
bankrupt because of short-term thinking.
>> And routine thinking, I guess, too. Like
uh
>> Exactly. Um,
another example I have, I think um, Mark
Anderson was talking about how
for 100 years, the rocket
would launch stuff into space.
And when it came back, it just dropped
in the ocean and it was never reused.
Elon Musk's Elon Musk said, "Well, what
if we just land these rockets on their
butt and reuse them?" So, then he
collapsed the entire cost structure of
launching rockets by reusing the the
rocket. So, they brought down the cost
by um,
I believe 90%
by a a magnitude of 10.
So, what they've been able to do is
create a monopoly around rockets. Now,
you have these hired CEOs in the rocket
industry who have thought completely
within the box. Then someone like Elon
Musk comes out, you know, and thinks
completely outside of the box and drives
value for the end customers,
essentially.
>> I have to say, Aaron, um
I am going to look up this index and
probably put some money into it because
I really like the thesis.
>> That's awesome. Yeah, so the ticker
symbol is OWN, the website is
insideownership.com.
>> Well, we will leave on that and I will,
you know, encourage my audience to kind
of like understand the concepts behind
this. It It's It's one of the most, I
think, basic type of understanding. This
is alignment of incentives. It's kind of
like what the the crypto industry was
based on and and and
this kind of just takes it to another
level.
Uh and I love the thought behind it and
the research. Thank you so much for
coming on.
>> Thank you for having me on.