I’ll never forget the day. It was a cold, blustery day in late 2008. The financial crisis was at its terrible apex. The DAX – like so many of the world’s major stock indexes – had been nearly cut in half. My own personal portfolio was down much more. It was a brutal time to be an equity investor.
And then David Gardner, co-founder of The Motley Fool, stood in front of a large room of investors, many of whom were angry and dispirited by the market’s losses, and said this:
“Hi, my name is David Gardner, and my portfolio is down 60%.”
With those words, a powerful feeling of calm washed over the crowd. The bitterness and resentment over the last several months suddenly dissolved away. Here was the Fool’s top investor admitting his portfolio was down just as much – if not more – than the average investor’s. People could confide in the shared misery, dust themselves off and get back to the business of investing.
And what a time it was to invest!
An important lesson learned
But as powerful and moving as it felt at the time, David’s speech wasn’t what I remembered most from that day. It was actually David’s brother Tom, the CEO of the Motley Fool, who had the biggest impact on me and my investing future that wintery day 6 years ago.
As Tom spoke about some of the lessons from the stock market crash, someone from the audience asked him about the most important things he looks for when trying to find the next great company to invest in. I can recite his answer word-for-word from memory:
“If you forced me to shield myself from all but one factor, and invest my capital according to that criterion for the rest of my life, I wouldn’t look for growth. I wouldn’t look for a great balance sheet. I’d focus only on…insider ownership.”
Insider ownership is a simple concept. It’s the percentage of the company’s shares that are owned by the company’s leadership team. But it’s an incredibly powerful investing concept.
Think about it. When each of us buys shares in a company, we become part owners of the business. We do so because we believe – through either capital appreciation or dividends – that we’re going to earn a solid return on our investment. We therefore have every motivation to want the company to grow, manage its expenses properly and generate sizeable profits.
Shouldn’t we demand that the executives who are actually running the company – the CEO, the top executives, the board of directors – have the same motivation? Shouldn’t their incentives be aligned with ours – the shareholders’?
The truth is in the shares
That’s why finding companies with high insider ownership – we’re not talking stock options and other short-term incentives, but actually share ownership – can lead to strong returns. When I look back at some of the biggest winners that we’ve recommended in our U.S.-based investing services, I see that in action.
Amazon.com (NASDAQ:AMZN)(STG:STG:AMZ): The global e-commerce company is up almost 2.000% since our initial recommendation. Insiders currently own 18% of the company shares, with founder and CEO Jeff Bezos accounting for almost all of it.
Baidu (NASDAQ:BIDU)(STG:STG:B1C): We’ve earned a 2.900% return in the Chinese search giant, and founder and CEO Robin Li has owned at least 20% of the company’s shares since Baidu went public.
Boston Beer (NYSE:SAM)(STG:STG:BBEA): This small American craft beer company is up more than 350% since we recommended it in 2010. And founder and Chairman Jim Koch still owns more than 31% of the brewer he founded 30 years ago.
Tesla Motors (NASDAQ:TSLA)(STG:STG:TL0): Perhaps no company has electrified the stock market over the past few years more than Tesla. We’re up almost 700% on the electric car maker. Would you bet against CEO and technologist Elon Musk, who owns 22% of Tesla’s shares?
Under Armour (NYSE:UA)(STG:STG:U9R): We’ve scored a 300% return in the sports apparel maker thanks in no small part to the efforts of founder and CEO Kevin Plank, who still owns more than 18% of the company today.
With any of these five examples above, you never have to question whether management is acting in your best interest, because you can be almost 100% assured that they are. As we say in America, they have skin in the game. They eat their own cooking. They are going to do everything they can to grow the market value of their company, because their wealth is tied to it, just like yours.
It’s for that simple reason why insider ownership has become my own favorite investing metric.
German companies with high insider ownership
With this in mind, I ran a quick screen of German companies on the DAX, MDAX and SDAX indexes. I looked for companies with at least 5% insider ownership plus revenue growth of at least 10% over the preceding year. Here are a few that caught my attention:
|Company||Insider Ownership||1-yr Rev. Growth|
|Ströer Media (STG:SAX)||33.19%||19.40%|
|Deutsche Beteiligungs (STG:DBAN)||27.44%||52.80%|
|Axel Springer (STG:SPR)||8.26%||24.30%|
I can’t say with any certainty if any of these companies might turn out to be great investments. But one thing I can say for sure: They certainly have some very motivated insiders.
Of course, insider ownership is just one of many metrics to take into account when researching a company. But it’s a great starting point for further research and, at least for me, trumps any other metric out there. Add it to your own investing toolkit and your portfolio will thank you.
… und warum es vielleicht unsere zweite Chance ist, ein echtes E-Commerce-Vermögen aufzubauen. Das smarte Geld investiert bereits in eine Firma aus Ontario, die noch deutlich unter dem Radar der Masse fliegt: 3 der cleversten (und erfolgreichsten!) Investoren, die wir kennen, sagen: Diese besonderen Aktien jetzt zu kaufen, ist so wie eine Zeitreise zurück ins Jahr 1997, um bei Amazon-Aktien einzusteigen — bevor diese um 47.000 % explodiert sind und ganz normale Anleger reicher gemacht haben als in ihren kühnsten Träumen.
Matthew Argersinger owns shares of Amazon.com and Boston Beer. The Motley Fool recommends Amazon.com, Baidu, Boston Beer, Tesla Motors, and Under Armour. The Motley Fool owns shares of Amazon.com, Baidu, Boston Beer, Tesla Motors, and and Under Armour.