On the Adjusted for Risk podcast, host Ryan Nauman interviews Haren Bhakta, founder and CEO of the Inside Ownership Index, who explains how the S&P 500’s free-float weighting effectively underweights shares held by controlling insiders and can end up buying more of founder-led companies after key leaders die.

Bhakta describes manually compiling 20 years of S&P 500 proxy filings to aggregate insider-ownership data and creating a passive index that weights companies by insider ownership as a “skin in the game” approach. He argues high ownership aligns management with shareholders, supports long-term innovation, and avoids value-destroying incentives, citing ownership patterns among 100-baggers and major S&P value destroyers. He also warns that proxy voting power concentrated in large asset managers entrenches mediocre leadership.

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Related:Russell’s Rebalance Is a Healthy Pruning Amidst an Epic Small-Cap Run

00:00 Welcome and Guest Intro

01:08 Origin of the Index

02:04 Free Float Problem

03:17 Building the Dataset

08:02 Why Ownership Matters

11:50 Power Law Leaders

14:37 Hundred Bagger Evidence

18:00 Long Term Culture Edge

27:24 Downside Protection

33:57 Passive Voting Risks

38:27 How Advisors Use OWN

40:25 Where to Learn More

41:29 Closing and Subscribe

Ryan Nauman Host Adjusted for Risk:

Welcome everyone to Adjusted for Risk

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podcast from the shores of Lake Tahoe.

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Over the years, many investment

professionals have spent many days and

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years researching the different factors

and drivers of equity performance

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to try and uncover signals that can

give them a competitive advantage.

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My m- next guest has launched

a strategy that he feels can

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help find top performing stocks.

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All right, enough from me.

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I've already talked enough.

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Let's go ahead and bring

on the star of the show.

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I'd like to give a very warm

welcome to Hiren Bhakta.

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Hiren is the founder and

CEO Inside Ownership Index.

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Hiren, thank you so much

for coming on the show.

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Really looking forward

to this conversation.

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Love all the research you've done.

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Wanna dig deep into that,

so looking forward to it.

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It's an honor to have you on.

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Can you please tell us a little bit more

about yourself and Inside Ownership Index?

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Haren Bhakta Founder & CEO Inside Ownership Index:

Sure.

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A little about myself.

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I started out in the investment

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through the wealth management program.

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Went to Morgan Stanley after about

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Spent about five and a half

years at Morgan Stanley.

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In 2017, I left Morgan Stanley to

start my own investment practice,

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and I've been doing that since.

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In 2024, I created the Inside

Ownership Index, and I, I think

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I created the idea while sitting

at the Berkshire annual meeting.

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So I'm a huge Warren Buffett fan.

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I bought a lot of Berkshire for myself

and for my clients because of that

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belief and trust in Warren Buffett.

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So I've read everything he's put out,

listened to everything he's ever said.

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And I was sitting at

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the back of my mind, afraid of what am

I gonna do with Berkshire when he dies.

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And this was the first meeting Charlie

Munger wasn't there because he had passed

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away about six, five months earlier.

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And so I'm sitting there afraid,

and at some point in the meeting

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it hit me that the S&P 500 will

actually be buying more Berkshire

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Hathaway when Warren Buffett dies.

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A lot of people don't know that.

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And the, the reason for that is

the S&P is what's called free

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float adjusted market cap weighted.

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So they don't count his shares because

he's a controlling shareholder.

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When he dies, he's not gonna be a

con-controlling shareholder anymore.

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Those shares become free floating.

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So I just thought, "Who would want more

Berkshire Hathaway without Warren Buffett?

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Who would want more

Tesla without Elon Musk?"

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'Cause they don't count the

20% of Tesla that he owns.

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And, same thing with Meta.

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Who wants more Meta

without Mark Zuckerberg?

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And I just thought, "Who…

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why is the S&P on the opposite side of the

table of these super value-creating CEOs?"

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We should wanna be on the

same side of the table.

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So I came home from Omaha and launched…

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figured out how to get this ownership

data first, and nobody had it.

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Nobody had CapIQ, Bloomberg FactSet.

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None of these data

providers had the ownership.

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So I had to go manually through all,

every single proxy filing of the S&P

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500 constituents going back 20 years.

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So I'm talking about 20,000, more than

20,000 different proxy filings manually.

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And the, the proxy filings are quite

complicated in a sense that AI can't

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easily just pull out the numbers.

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At least it couldn't in 2024.

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So I'm currently the only one

with, with the data aggregated.

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The data's there in the proxies,

it's just n- nobody has it.

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So essentially, the Inside Ownership Index

is a, a passive index that tracks the

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performance of shares owned by insiders

versus the S&P is the reverse of that.

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It's, the S&P is what's called the

free float adjusted market cap.

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So it's counting all the shares

that's essentially not held by

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controlling shareholders, and I'm

counting the shares that are actually

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held by controlling shareholders.

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It's essentially, as my

T-shirt says, skin in the game.

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Says, it's the skin in the game index

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Ryan: Love that, Heron.

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And that's fantastic.

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I don't…

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Like you said, I don't think a

lot of people realize that about

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the S&P and being free float.

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And yet I'm, doing research here before

we jumped on, it is really interesting.

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Yeah when, Warren passes along, it's

inter- S&P is gonna be buying up

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Berkshire, but then at the same time,

it's do you really wanna own it?

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There's so much uncertainty.

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Yes, they have a succession plan in place,

but still a lot of uncertainty there.

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So it's interesting.

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Yes,

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Haren Bhakta: Right

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Ryan: will go along with the S&P and,

buy whatever they're adding to the

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index, but it raises questions, and

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Haren Bhakta: Yeah.

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What I find in my research is that a

brilliant CEO, I think about half the

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time they could find a good replacement.

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And one, one example of that is Apple.

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So Steve Jobs found a good

replacement in Tim Cook.

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But what I've…

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I can't find a single scenario where the

replacement could find a good replacement.

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And because by then the, the company

gets bureaucratic, and to rise up the

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ranks in an organization, it becomes

very political, very suit-wearing type

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person, and they're good at maybe sales

or talking, but they're not good at

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innovation, which is what re- what's

really requi- required in a technology

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company to take the company to the next

level, especially in a changing world.

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And we have an extremely fast-paced

changing world right now with AI, right?

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So you…

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We don't see Apple participating

at all in this next future.

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And, when the cellphone changes, and

it hasn't changed in, in, 20 years or

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almost 20 years now, s- but when the

world does change, y- I don't see Apple

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participating 'cause they're not investing

any capital into the future at all.

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And I…

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and it's probably the right decision

because they don't have the talent.

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Now, we have a Mark Zuckerberg

at Meta making huge bets.

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We have Amazon with Jeff Bezos.

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Jeff Bezos is not the CEO,

but he is the chairman.

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He is overseeing strategy.

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When you have people capable of making

these big bets you want them to.

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And in, in Apple's case,

you don't have that.

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My research finds that the world

going back, 1,000 years has always

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changed by the m- minority few.

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And to capture more of that by using an

inside ownership weighted index you get

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a more concentrated version of the S&P

and bigger bets on the biggest innovators

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Ryan: Yeah, I'm a firm

believer in that too, Harry.

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If you are committed to something,

conviction in it, right?

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Go all in versus…

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in some cases for investors,

maybe going all in on Bitcoin

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maybe is not the best thing to do.

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But there's a lot of things.

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If you are convicted, you have conviction

in a certain strategy, investment

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thesis or something go all in on it and

show that you're committed to it, and

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that, so it's interesting that you're

talking about on the corporate side.

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So it.

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Great start here.

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So why does inside ownership

and really shareholder alignment

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matter when it comes to investing?

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Haren Bhakta: Shareholder

alignment is huge.

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What you want is leaders of the

organization to think like shareholders

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and to be aligned with shareholders.

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Otherwise, you get scenarios where

insiders have perverse incentives, right?

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Where they are not aligned with

shareholders, they become agents for

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the corporation and, more concerned

with their own base salaries and/or

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board fees versus, versus actual-

actually creating shareholder value.

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One example I have that, of

that right now, playing out

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right now is eBay and GameStop.

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So Ryan Cohen, the CEO of GameStop, has

placed a bid, a takeover bid for eBay.

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Now, I'm not an eBay shareholder,

so I can't tell you whether

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it's a good deal for eBay.

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But what I can tell you is that

eBay's board cannot objectively decide

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whether it's good for shareholders.

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You know what I mean?

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Because they're not shareholders.

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They're getting $300,000 in board fees

every year, and the CEO is getting

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$30 million in compensation who's

never purchased any stock himself.

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So you have essentially people protecting

their own job deciding whether a deal

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is good for shareholders or not, and

it is just creating a skin in the game

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problem where you get these corporations

with no share ownership themselves

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deciding what's good for owners

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Ryan: Yeah, that's really interesting.

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And I like to think too, Heron, on

the investment side, very rarely…

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stock picking's really hard.

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I'm not very good at it, so

I focus on the professionals.

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I'll pay, points or whatever, how much it

is to have professionals manage the money.

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But when I'm doing that, one

of my criteria is I want these

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managers, portfolio managers,

to eat their own cooking or have

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their skin in the game, as you

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would say.

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I want their own skin in the game.

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I don't want to invest in a

portfolio manager who doesn't

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invest in their own strategy,

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Haren Bhakta: Exactly.

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Yeah.

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Yeah very exactly similar and my,

one of my favorite investors is

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named Nick Sleep out of the UK.

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He's very underrated.

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A lot of people don't know about him.

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He created enormous wealth for investors,

and he eventually shut down his fund

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because he made so much money and he

told his investors that, "Hey, you

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don't need to pay me fees anymore.

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Just buy these three stocks.

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That's what I'm gonna do."

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So he had this fabulous

run and he said, "Hey…"

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I think he shut down in 2014, and he

said, "Hey, just buy these three stocks

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'cause that's what I'm gonna own."

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He bought Costco, Amazon,

and Berkshire Hathaway.

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And he- his line is that the best

investors are not investors at all.

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They're entrepreneurs that

never sold, which is true.

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Now we l- look at the best investors.

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You got Jeff Bezos, Mark

Zuckerberg Warren Buffett.

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These aren't investors.

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Essentially, they're entrepreneurs

that never sold their stock.

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So what we should be doing is

outsourcing our investing to these

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greatest investors, and by doing that

an inside ownership w- index basically

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does that for you in a systematic way

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Ryan: Yeah, exactly.

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I, yeah, I think it's very important

to invest in people that, like you

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said, they have skin in the game too.

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You wanna invest

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Haren Bhakta: Yeah.

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Sa- Sam Hinkie, s- the old GM of 76ers

he had a line that the people are power

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law, and the best ones change everything.

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And the, and society has

always worked that way.

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The best people are power law, and

the best ones do change everything.

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Look at the last 2,000 years.

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We've…

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Society has moved by the f- the, the

small number of individuals have created

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enormous value or y- m- maybe more than

1,000 years ago is more about armies.

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But today, you can classify a

organization or corporation as a,

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a, as its own little army, right?

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And, it's always been the individual who

has taken, who people have rallied around

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that individual and created enormous value

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Ryan: Yeah, a- and speaking of

power law, I'm glad you brought that

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up, Erin, because I've done some

research, h- and it's clear power law

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is very evident in today's market.

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For not only for recent years with

the Mag Seven stocks, and even go

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back in time, power law, it's where

very few names, 10 names, drive the

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performance of the overall market.

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So same with people too

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Haren Bhakta: Absolutely.

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There was this s- study done by a

Arizona State University professor who

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looked at all US stocks over 100 years.

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So we're talking about a century of data,

looking at every single stock in America.

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What he discovered was 4% of all stocks

delivered all the wealth creation, while

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the other 96% matched US Treasury bills.

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So it's not even just a recent phenomenon.

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The stock market has always been a

small number of stocks carrying the

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entire performance of the indices.

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So it's always been power law driven.

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But what, where academia got it half

right is that the leaders of organizations

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have exhibit even bigger power laws.

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There's a small number of leaders

that create enormous wealth, and

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we can look at that today with

Elon Musk and Jensen and Jeff Bezos

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and Z- and Mark Zuckerberg, right?

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So these few exceptional leaders create

enormous value while most of society

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and m- most of these companies don't

deliver enormous shareholder wealth.

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And so by investing in these exceptional

leaders you could raise your performance.

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And I looked at every

hundred bagger I could find.

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A hundred bagger is a stock that

delivers 100 times your money.

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So you put in $10,000, it

turns into over a million.

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Between the years 2000 to 2025,

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I found about 21, and only two exceptions.

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Every single one of those 21 except for

two, Apple and FICO Isaac, had ownership

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above 5% at the start before it went on

that, that hundred bagger return journey.

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So Apple surprisingly

is kind of an asterisk.

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So Steve Jobs didn't own a huge part

of Apple despite being a founder, and

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is-- the reason for that is he got

kicked out of Apple and then came back.

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So he had sold out of Apple I, I believe

two times throughout his career, he

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had sold out of Apple and got back in.

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The f- the s- the last time is

because he was kicked out, so he,

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sold his whole entire stake of Apple.

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And so and the other exception

was FICO Isaac, but all the other

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ones had ownership above 5%,

and very often more than that.

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And there was no other

commonality I could find.

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They were all in diverse

different industries.

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It wasn't necessarily the CEO

that, that owned the stock.

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It wasn't necessarily a founder.

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Tractor Supply was one company that,

that achieved that hundred bagger

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return, and that was an old company.

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Didn't have a founder

but it had ownership.

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Monster Beverage, again, that

wasn't founder-led, but it was

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people with skin in the game.

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So it doesn't have to be

a founder, essentially.

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Warren Buffett is not the

technically the founder of Berkshire.

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Howard Schultz was not

the founder of Starbucks.

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Yeah.

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And, even surprisingly, Elon Musk is

technically not the founder of Tesla.

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Yeah, a lot of people don't know that.

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So he a- he acquired Tesla or made a

huge investment into Tesla early on.

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Yeah, he was early on, but he's

technically not the founder, although

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he's probably labeled the founder, just

like Warren Buffett is now labeled the

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founder of Berkshire, and rightfully

they, he created the value of modern

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day Berkshire, but technically speaking,

he's not the original idea or he

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didn't create the, the entity Berkshire

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Ryan: Yeah, that's interesting

because I didn't know that.

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I just assumed that Musk was a

founder, and same with Warren.

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So interesting there.

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Also, who would've thought if you

said, asked somebody 2,100 baggers

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over the past, 20 years or so when

you started this, who would've

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thought Tractor Supply would've

named Tractor Supply as one of them?

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Haren Bhakta: Yeah, yeah.

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Tractor Supply, Universal, w- a

company called Universal Insurance.

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Yeah, again, 21 of them.

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Netflix, Nvidia, Apple g-

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Ryan: I think people would've gone there.

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Haren Bhakta: Yeah.

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Ryan: Supply I don't think would've

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Haren Bhakta: O'Reilly's another

one, the auto parts store.

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O'Reilly's, another hundred bagger.

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Again, O'Reilly's wasn't founder led I

don't believe, but it was family operated.

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So what I find is that w- it takes an

owner/operator to have that extreme

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outlier type returns, and the reason

for that is it's a cultural thing.

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So if you d- have no ownership

on a board or at the executive

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level, you are judged quarterly.

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And when you're judged quarterly,

you're gonna think quarterly, and to

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have these extreme returns, you have

to do things that make your company

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look less profitable now in order

to achieve these enormous returns.

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So for example Walmart and Costco,

they purposely suppressed margins.

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They wanna offer, and Amazon is too,

they wanna offer low prices, right?

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They could raise prices and probably

increase profits over the next

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quarter or year, but that would

damage the long-term aspect of their

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business in, in providing low prices.

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So when you have no ownership

and you reward CEOs for

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quarterly performance, they get

incentivized to perform quarterly.

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But to create these enormous

returns you can't think quarterly.

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Jeff Bezos thought in decades, right?

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He was perfectly fine failing in

small projects that had maybe a

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high chance of failure, but if

successful, had these enormous runways.

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So one example, a couple examples

is he failed with the Fire Phone,

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but through, through trial and

error, they came up with AWS, right?

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Huge a world-class company now.

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Jeff Bezos created essentially

not just one world-class company,

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he created two, Amazon retail

store, or web store, and AWS.

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These individuals are able

to create enormous value.

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We should want to essentially ride

their coattails, and when they're

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gone not be invested in those

companies as much, or if at all.

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Ryan: And e- exactly like you said

too, they're thinking long-term.

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They're not just thinking, "Oh, we gotta

meet our objectives quarter to quarter."

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They're thinking long-term, just

like I keep, going back to if I'm

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going to invest in a portfolio

manager, three quar- three months?

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Yeah, that doesn't really do it for me.

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I want a portfolio manager that has been

very successful over 10 years, right?

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Haren Bhakta: Exactly.

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Exactly.

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Yeah.

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And so the, the other importance

of skin in the game is, like Jeff

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Bezos said, basically, if you

want to be successful, you have

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to be willing to be misunderstood.

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And if you're a CEO or board with

no ownership, they don't have

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the luxury to be misunderstood.

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They don't have the luxury of doing

things now that are unexplainable

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or, people or shareholders or Wall

Street doesn't understand now.

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So they don't have the luxury

of doing things where they

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can be proven right later.

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They have to essentially innovate

by consensus, and consensus

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and committees do not innovate

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Ryan: Yeah, that's a very good point.

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So during your research, when you looked

at all these 100 bag- baggers, the

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21 of them from, over the past, that

time period that you were looking at,

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was there a cutoff, like a percentage

when you're talking about ownership?

335

Was it like 10% ownership, 20%?

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Haren Bhakta: Well, 5% was, 5% was

the cutoff that I looked at, and

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19 of those 21 had at least 5%, and

very often more Right at the start.

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So they didn't all finish

with that kind of ownership.

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So for example, NVIDIA now the…

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What you find is a lot of the founders

or owners do sell along the way, and

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it's not because that they're bearish.

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It's because that their 99% of their

net worth is often tied to this company,

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and they're going to bed thinking

about it, waking up thinking about it.

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So they're taking liquidity along the way.

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So rightfully so the…

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Yeah.

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So what-- Jeff Bezos has been selling

Amazon for 20 years, but that,

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that's not because he's bearish.

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He's, all his net worth is

tied up into the company.

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And which actually brings me

to my favorite analogy is that

351

what I call a hired CEO, I call

I call a hired CEO a zoo animal.

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Now, a zoo animal gets

fed every day, whether it

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successfully hunts or not, right?

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A zoo animal or a hired CEO gets

their base salary, quarterly bonus

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and very often a golden parachute.

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I like to call a

owner/operator a wild lion.

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A wild lion is trained to survive.

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These CEOs have already proven

their ability to create value in the

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world, so they're trained to survive.

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And when they don't successfully

hunt, they feel the pain, and that's

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what you're looking for in a CEO.

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You want them to feel the pain of

failure, and you want their net

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worth to be directly exposed to that.

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And very often, these owner/operators

are taking the lowest salaries.

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It's the hired CEOs that are taking

the large base salaries, right?

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So they don't often feel that pain.

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And innovation comes from feedback

loops, trial and error, and it's--

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This is exactly why it's very hard

to innovate through committee.

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You don't get those feedback

loops, and they don't feel the

370

pain of mistakes initially.

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It's suppressed.

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And yeah, the, the…

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One of my favorite books is How

Innovation Works and by Matt Ridley.

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He talks a lot about how innovation

really works, and it works it through

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trial and error and not through

decentralized decision-making.

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Or I'm sorry, not through

centralized decision-making.

377

It comes from des- decentralization, where

the people working on the problem have

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actual decision-making power to to pivot.

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And what you get in non-skin in the

game companies is centralization

380

of decision-making from the top.

381

And that's not how innovation works

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Ryan: And he goes right

back to skin in the game.

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And it's a care factor too.

384

Like you said, that, zoo lion, yeah,

they probably, they, the care factor

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is not there as a hired CEO more.

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Maybe they just have more of a

figurehead CEO versus that, lion, that

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wild lion who's got that care factor.

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They really care that they're gonna

eat, and they gotta go hunt, and

389

A very important part is caring,

390

Haren Bhakta: Exactly.

391

Yeah.

392

So I did, so I, you heard me talk

about the 21 100 baggers, which,

393

19 of them all had ownership.

394

I also studied the five largest

value destroyers of the S&P over

395

the last five years, and all

five had very low ownership.

396

So not only are we getting more

outlier returns from high ownership

397

companies, we're also getting the

biggest value destroyers of the S&P

398

having no or very low ownership.

399

So number one was PayPal, the biggest

400

The second biggest value

destroyer destroyer was Adobe.

401

Again, no ownership.

402

Haren Bhakta Inside Ownership Index:

Disney was number three.

403

Comcast I believe Nike was number

five or number six, I can't remember.

404

But the, the point is that every

single one had low ownership.

405

Nike, founded by Phil Knight,

world-class brand, right?

406

Down 70% over the last five years.

407

We're talking about a world-class

brand of Nike and the biggest bull

408

market in stock market history,

and yet the stock is down 70%.

409

This is because Phil Knight is

no longer part of the company.

410

It's remove from a company who made it

great and you removed what made it great

411

Ryan: Yeah.

412

That's interesting because,

with Nike you do think that…

413

nike's all over the place,

but it doesn't mean that it's

414

performing well or it's stock.

415

And

416

Haren Bhakta: Exactly.

417

Ryan: Knight is

418

Haren Bhakta: 70% down in the

biggest bull market in history.

419

Ryan: that care factor

420

Haren Bhakta: Exactly.

421

Yeah.

422

Someone going to bed thinking

about the company, waking up

423

thinking about the company.

424

And the co- it's not a fast-moving

thing when these founders retire.

425

It's that the culture slowly erodes

426

And they start thinking about the

wrong things, and that's what it is

427

Ryan: It's interesting.

428

So there is a high correlation or a

correlation between high ownership

429

companies and strong culture then

430

Haren Bhakta: Absolutely.

431

And, that actually brings me to

the, the title of your show, Zephyr.

432

We went back 20 years.

433

So the index itself has

been live for two years now.

434

The ETF that tracks the index only

launched about a month and a half ago.

435

But the index itself, and we've been

managing portfolios according to

436

the index for almost two years now.

437

But what we looked at is how it's

performed in volatility periods.

438

So we went back 20 years.

439

What we found is it is more concentrated,

so it, it does have more volatility.

440

However, in 2008 and 2020, the

two global catastrophic events

441

we've had over the last 20 years.

442

So these were not just volatility

443

These were actual global

catastrophic events.

444

And S&P 500 went down more than these

high ownership companies collectively.

445

So while we could use academic risk models

to say, one is more volatile than the

446

other, but when you needed a safety the

most in these two global catastrophic

447

events, what we found was that the S&P

fared worse And that's because high

448

ownership companies are better run.

449

They have better management,

they have better balance

450

sheets, they are less levered.

451

They also have access to

capital when nobody else does.

452

So they have access to more capital

when the world is going through its

453

l-liquidity crunch, like in 2008.

454

We could, again, we could use

volatility as a measure, but what I

455

find is the Warren Buffett principle

is, what gives you a, a chance of

456

losing actual capital or permanent

capital, permanent loss of capital

457

versus just gyrations in the market.

458

And investing in these high

ownership companies I, you, I

459

believe you, you have less chance

of losing permanent loss of capital.

460

And the best example I have

is Silicon Valley Bank.

461

Silicon Valley Bank was in the S&P 500,

462

you had exposure to Silicon Valley Bank.

463

And if you look at the proxy filing,

464

that it was represented by an asterisk.

465

So insiders own nothing.

466

So what you get is a company that

will leverage up the company to hit

467

quarterly bonuses without thinking

about the exposure of failure.

468

And when you have a true owner,

they're thinking about failure or

469

catastrophic loss first, and then

optimi- optimizing performance secondary.

470

But, when you have a company like Silicon

Valley Bank with no owners, they thought,

471

"Let's hit it out of the park first,"

and, not worrying about surviving first

472

Ryan: Yeah, that's fantastic.

473

I love that you brought up about

just losing money, and one of

474

my favorite quotes from Warren

is, I believe, r- his rules.

475

Number one, don't lose

476

Haren Bhakta: Don't lose my number two.

477

Don't forget rule number one.

478

Exactly.

479

Ryan: that.

480

Find…

481

You brought up volatility.

482

often find in investing we, we focus

on standard deviation and volatility.

483

In recent years, it's shifted now in terms

of risk to just capital preservation.

484

To me, that's the real

risk, Erin, is losing money,

485

Haren Bhakta: Exactly

486

Ryan: the upside volatility you want,

and it goes back to what Warren was

487

saying, what you were just saying.

488

Losing value, losing money is really

the risk that you want to mitigate,

489

Haren Bhakta: Exactly.

490

As Nassim Taleb says, "Never cross a

river that's on average four feet deep."

491

So in order to achieve these

average returns, which, can be

492

high, you must first survive.

493

So that part of the, the S&P that was

in Silicon Valley Bank, that, that part

494

of the money will never earn the average

ra- return because it went to zero.

495

So what you want is to avoid losses.

496

And like I mentioned the S&P's

biggest value destroyers were these no

497

ownership companies, and the biggest

outliers were high ownership companies.

498

And that's because these, when you have

leaders that own meaningful stakes,

499

they do treat the company better

500

Ryan: Yeah.

501

And it goes back to while you're

talking it brings me back to trust too.

502

You talked about these high ownership

companies, they're able to access capital

503

markets even when capital markets are dry

504

Haren Bhakta: Exactly

505

Ryan: lending money.

506

it trust?

507

This industry's built huge on trust.

508

If there wasn't trust in

wealth management, there

509

wouldn't be wealth management.

510

do you think that's wh- even though you

have Elon Musk and these big names that

511

are very eccentric, they're out there.

512

Is it because the capital markets

trust these, the owners and they're

513

Haren Bhakta: Yeah.

514

Ryan: We trust them, let them go"?

515

Haren Bhakta: they're

proven successful leader.

516

They're proven to be able to

create value in this world, right?

517

So yeah, they're more

highly trusted, right?

518

W- you would rather give capital to

Jeff Bezos, Elon Musk, Warren Buffett

519

than some guy you never heard of, right?

520

Can you really name the CEO of Micron?

521

Yeah, Micron is a trillion-dollar

company today, but who is the CEO?

522

I have no idea.

523

I don't think most people do.

524

Right now, ExxonMobil is a

top 10 company in the S&P 500.

525

Can you name the CEO?

526

I have no idea who that is, right?

527

In the Inside Ownership Index, you can

name every CEO in the top 10 of the index.

528

But, m- you get these people who have

really no ownership, no significant

529

past performance controlling these

enormous trillion-dollar companies who

530

are essentially people we don't know.

531

So it, you know-

532

Ryan: That, that's a really good point.

533

So let's talk to you.

534

As a shareholder, you brought it

up, you get the chance to vote

535

on corporate, whether it's CEO

or, whatever through ownership.

536

But now you have these huge asset

managers, BlackRock, Vanguard, these

537

passive market cap-weighted index funds

that control the voting through proxies.

538

Is that gonna be an issue there

when you have these huge passive

539

market cap-weighted index funds?

540

Is that a hidden problem?

541

Haren Bhakta: Yes, absolutely.

542

I see that as a huge systemic

skin in the game problem.

543

You have more and more of these

trillion-dollar companies or hundred

544

billion dollar companies controlled by

a board and executives that maybe own no

545

shares or purchase no shares themselves.

546

So what you get is

perverse incentives, right?

547

You get non-owners deciding what's

good for owners, and they have

548

these enormous balance sheets

to fund their own lifestyle.

549

And, it, it's a huge problem.

550

So I think I mentioned this

earlier with Ryan Cohen and eBay.

551

I think that's a, a big problem in

that in the past, if management was

552

terrible or mediocre, they could be voted

out, and that's not the case anymore.

553

So Warren Buffett actually talked

a lot about this, the biggest value

554

destroyers in Warren Buffett's eyes.

555

He said this in 1997, that the biggest

value destroyers are mediocre CEOs because

556

a terrible CEO could be will be changed,

but a mediocre CEO will stay in a very

557

long time and just destroy value over,

over the course of maybe a decade or two.

558

Today

559

Terrible CEOs can be locked

in because there's no longer

560

a mechanism to remove them.

561

Like I said, in the past, we could vote o-

vote out terrible management and replace

562

m- terrible management with a CEO that

maybe shareholders think more highly of.

563

But today, with BlackRock, Vanguard,

and State Street controlling all of

564

corporate America, who automatically

essentially vote for incumbents, there's

565

no longer a mechanism to remove them.

566

And pretty soon, as they continue to

take market share we're gonna see…

567

right now they're already the largest

shareholder in America, but pretty soon

568

they're gonna be larger than all other

shareholders combined, and that's a

569

scary thought where if they own more

than all other shareholders combined,

570

this will entrench management, and

they will control, even being terrible,

571

they will control that company with

no mechanism to have them removed.

572

That's a scary thought

573

Ryan: And do you even feel some

of these large asset managers

574

even complete the proxy votes?

575

Just are gonna

576

shove

577

Haren Bhakta: outsource it

to ISS and, things like that.

578

So it's like they're automatically

essentially voting for incumbents.

579

It's very hard for them to

get them to vote for a change.

580

And w- if we, if you get a terrible

board, they're essentially locked in,

581

and they're g- and that's becoming

more and more the case where these

582

terrible boards are locked in with

no mechanism to have them removed.

583

In the past, we would vote them out.

584

Now no one's vote counts anymore except

for BlackRock, Vanguard, and State

585

Street and they're not really voting

586

Ryan: It's one of those risks

like you-- that hidden, right?

587

It's a hidden r- people don't think about,

and as they just keep getting bigger and

588

bigger, reduces our power as shareholder

589

Haren Bhakta: absolutely, yeah.

590

And you get these forced buyers,

so they're blindly throwing money

591

at these companies, at these CEOs

that may not deserve it simply

592

because of their market cap size.

593

But the insiders own nothing, and blindly

the S&P just throws money at them.

594

And I believe we created

a solution for that.

595

We should be indexing to the leaders of

the organization and how much they own

596

versus the, the pure size of the company

597

Ryan: Very good point.

598

Very good point.

599

So lastly, Aaron, fantastic conversation.

600

I love it.

601

A lot of information here and facts

that information I didn't know about.

602

Lastly, for all the financial advisors

out there listening, how can they use this

603

strategy in their clients' portfolios?

604

You own the index.

605

How can they implement this

strategy within a portfolio?

606

Haren Bhakta: Yeah.

607

We have the ETF.

608

ETF's ticker symbol is O-W-N, OWN.

609

Ryan: Love

610

Haren Bhakta: easy to remember.

611

Ryan: that one,

612

Haren Bhakta: Yeah.

613

Yeah.

614

Ryan: we can remember that one.

615

Haren Bhakta: Yeah.

616

Yeah.

617

So what I find is for, oh, for one,

it has a 49 basis points, so just

618

under half a percent expense ratio,

and it's well-deserved because,

619

again we're capturing more exposure

to the most innovative companies.

620

And what I find advisors using is, for

one they could reduce exposure to the

621

stock market, I believe, by being…

622

having a more concentrated portfolio

of stocks that are more innovative

623

and, potentially have more upside.

624

So advisors could, by using OWN, they

could diversify the client portfolios

625

in other asset classes more as the

stock market is at all-time highs,

626

we should be looking to participate.

627

You have to participate in

the stock market, for one.

628

You can't time yourself out of it.

629

But what you can do is reduce exposure

to the stock market at all-time highs

630

or near all-time highs and diversify

in other alternatives or fixed income.

631

And as the market gets cheaper, you

could allocate more and more to the

632

market at the at cheaper prices.

633

But what I find advisors doing is

using the OWN index to get more

634

of what's working or more of the

innovative companies while reducing

635

exposure to the stock market

636

Ryan: Love it.

637

Perfect.

638

Perfect information.

639

So those advisors, our audience,

if they want more information about

640

Inside Ownership Index and the ETF,

where can they get that information?

641

Haren Bhakta: Yeah, I have an even

easier website, insideownership.com.

642

Very easy to find, insideownership.com.

643

M- they could also look me up on

LinkedIn and other social media.

644

I'm very easy to find here in BHACTA.

645

Website also they could email me

through the website insideownership.com.

646

So very, yeah, very easy to find.

647

Happy to talk to anyone get,

go deeper into the methodology

648

with anyone who's interested

649

Ryan: I love it, Aaron.

650

Fantastic conversation.

651

I really enjoyed it.

652

Like I said, I learned a lot.

653

You threw a lot of great information,

supporting data, supporting

654

information, which I really enjoy.

655

I will include those links to

the website in the show notes.

656

Really interesting stuff,

and I like it simple.

657

you for

658

Haren Bhakta: Awesome.

659

Ryan: it simple for me, Aaron.

660

Haren Bhakta: Yeah

661

Ryan: it.

662

It's been an honor.

663

Really enjoyed it.

664

So thank you for coming on.

665

thank you so much for listening to this

episode of Adjusted for Risk podcast.

666

You can watch all of our other episodes

on YouTube and all the other platforms

667

that you listen to your favorite podcasts.

668

Please be sure to like and

subscribe to those channels and

669

give us a follow on LinkedIn.

670

Thank you very much and have

a great rest of your week