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

Haren Bhakta is the Founder and CEO of Inside Ownership Index, the company behind the Inside Ownership 100 (IO 100). He has more than two decades of experience in financial markets and portfolio construction and developed the index around the idea that executive ownership can better align leadership with shareholders. Earlier in his career, he worked at Merrill Lynch and Morgan Stanley before serving as Managing Member and Investment Adviser Representative at HSB Capital Advisors. A CFA charterholder, Haren focuses on ownership-aligned investing, accountability, and the role of “skin in the game” in long-term value creation.

Here’s a glimpse of what you’ll learn:

• [1:43] How Warren Buffett and Berkshire Hathaway sparked the Inside Ownership 100 idea
• [4:55] Why Nassim Nicholas Taleb’s Skin in the Game shaped Haren Bhakta’s investment philosophy
• [8:00] The difference between insider-ownership weighting and traditional market-cap weighting
• [12:18] How owner-operators can make contrarian decisions and protect long-term company culture
• [14:13] Why a small number of extreme winners drive stock-market wealth creation
• [19:13] The quarterly rebalance schedule and why leadership departures can matter more than insider selling
• [25:24] How declining founder ownership can signal culture erosion and portfolio trimming
• [28:05] The natural investor for an ownership-based passive index strategy

In this episode…

Equity investing often emphasizes company size, earnings, and valuation while paying less attention to the personal ownership stakes of corporate leaders. Significant insider ownership can reshape incentives by tying executives’ financial outcomes more closely to long-term shareholder value. Could weighting companies by leadership ownership help investors capture more of the market’s biggest long-term winners?

According to Haren Bhakta, who founded the Inside Ownership100 Index, ownership provides a practical way to measure alignment between corporate leaders and shareholders. His Inside Ownership 100 methodology begins with S&P 500 companies, ranks them according to the dollar value of insider-held shares, and gives greater weight to businesses where leaders have meaningful financial stakes. Haren argues that owner-operators are more likely to think long term, protect company culture, accept short-term tradeoffs, and pursue unconventional ideas because their own wealth rises or falls alongside shareholders.

On this episode of Top Business Leaders Show, Chad Franzen welcomes Haren Bhakta, Founder and CEO of Inside Ownership Index, for a conversation about insider ownership, founder-led companies, and the “skin in the game” philosophy behind the Inside Ownership 100. Haren explains how the index differs from the S&P 500, why ownership can shape incentives and culture, how leadership changes affect rebalancing, and why he sees ownership concentration as a governance risk.

Resources mentioned in this episode:

• Chad Franzen on LinkedIn
• Rise25
• Email the team at Rise25: support@rise25.com
• Inside Ownership Index
• Haren Bhakta on LinkedIn
• Inside Ownership Index on LinkedIn
• Skin in the Game: Hidden Asymmetries in Daily Life by Nassim Nicholas Taleb
• How Innovation Works: And Why It Flourishes in Freedom by Matt Ridley
• S&P Dow Jones Indices

Quotable Moments

• “When leaders own meaningful stakes in the companies they run, they treat the companies better. They treat shareholders better.”
• “When you have something on the line, your mind operates differently than when you have nothing on the line.”
• “You need a CEO with significant skin in the game to do things that may not make sense to most people.”
• “Index returns come from a small number of extreme winners, and a small number of individuals create enormous wealth.”
• “By regularly participating and knowing what you own, you’re more likely to stick to your strategy over the long term.”

Action Steps

1. Evaluate insider ownership when researching companies: Look beyond market capitalization and consider whether executives and board members have meaningful personal capital invested alongside shareholders.
2. Examine how leadership incentives affect decision-making: Consider whether executives benefit primarily from short-term bonuses or have substantial ownership encouraging long-term value creation.
3. Monitor major leadership transitions: Pay attention when influential founders, CEOs, or owner-operators retire, leave the board, or materially reduce their ownership stakes.
4. Look for cultures built around long-term ownership: Study whether leaders have the freedom and financial alignment to make unconventional decisions that may sacrifice near-term results for lasting value.
5. Know what you own and remain engaged: Understand the people behind your investments and the reasons you hold them to reduce the temptation to react emotionally to short-term market movements.

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Episode Transcript

Intro: 00:04

Welcome to the Top Business Leaders Show. Powered by Rise25 media, we feature top founders, executives, and business leaders from all over the world.

Chad Franzen: 00:20

Hi, Chad Franzen here, co-host of the Top Business Leaders Show, where we feature CEOs, entrepreneurs, and top leaders in the business world. This episode is brought to you by Rise25. We help B2B businesses reach their dream relationships and connect with more clients, referrals, and strategic partnerships and get ROI done through done-for-you podcasts. If you have a B2B business and want to build great relationships, there’s no better way to profile the people and companies you admire than on your own podcast. To learn more, go to rise25.com or email us at support@rise 25.com.

My guest today is Haren Bhakta, founder and CEO of Inside Ownership Index. Haren has more than two decades of experience in financial markets and portfolio construction, and developed the Inside Ownership 100 index, which selects and weights companies based on the value of shares owned by insiders. Earlier in his career, he worked at Morgan Stanley, Merrill Lynch and Securities, and he later served as managing member and investment adviser representative at HSB Capital Advisors. He is a chartered financial analyst and is also CEO and investment advisor representative at I O advisors. Hey, Haren, thanks so much for joining me today. 

 How are you?

Haren Bhakta: 01:32

Hey. Good. How’s it going?

Chad Franzen: 01:34

Good, thanks. So tell me a little bit more about inside ownership and kind of what led you to starting that?

Haren Bhakta: 01:43

Yeah. Well, for starters, I’ve been in the investment industry for a long time, and at some point, I fell in love with Warren Buffett and his teachings. And I started attending the Berkshire annual meetings in Omaha every year since 2017. So I invested a lot of money in Berkshire Hathaway for myself and for my clients. And in 2024, I actually thought of the idea of the index while sitting in the meeting.

And this was the first meeting where Charlie Munger had passed away. So he wasn’t there. So it was this kind of like in the back of my mind, what am I going to do with Berkshire shares when Warren Buffett passes away? I don’t think of the company’s future prospects in the same way without Warren Buffett. And so halfway through the meeting, it actually hit me that the S&P 500 will actually be buying more Berkshire Hathaway when Warren Buffett dies. 

 A lot of people don’t know that the S&P 500 does this calculation where they exclude his shares, they exclude controlling shareholders when they calculate the size of each company. And I just thought, okay, well, this is the opposite of what I would want. And probably any other investor, we own Berkshire Hathaway because of that belief and trust in Warren Buffett. So who would want more Berkshire Hathaway without him? We should want more with him. 

 And with the same respect, Tesla. Who would want more Tesla without Elon Musk? Who would want more meta without Mark Zuckerberg? So I created the index in order to invest more so in these genius CEOs and, you know, move on from these companies. Once these CEOs are gone and invest in other high ownership companies where the leaders own meaningful stakes in the companies they run.

Chad Franzen: 03:43

So tell me a little bit about how the index works. Then I mentioned that it selects and weights companies based on the value of shares owned by insiders. Can you kind of expand on that?

Haren Bhakta: 03:53

Yeah, sure. So we start with the S&P 500 as a starting universe. So we look at the 500 companies within the S&P 500, and then take the top 100 from there based on the dollar value of ownership by the leaders of the organization. And the idea behind that is, is when leaders own meaningful stakes in the companies they run, they treat the companies better. They treat shareholders better.

They are more long term oriented. They’re not trying to hit quarterly metrics or bonuses. What they care about is long term value and value creation. So by investing in these high ownership companies, you end up with a more robust, more robust portfolio, more shareholder aligned. And yeah, and in general, over a long period of time, they tend to perform better.

Chad Franzen: 04:48

I saw Skin in The Game. Nicholas Talib’s Skin in The Game. I’m sorry Nicholas.

Haren Bhakta: 04:55

I read Skin in The Game literally seven times. I’m quite obsessed with that book. And I thought of the idea of the skin in the game index, which is essentially a skin in the game index by basically reading the book and you know it. That’s probably how it hit me. You know, how skin in the game is incredibly important in decision making.

And, you know, like he says, I’m a person who has two minds. One, when their skin is in the game, one when there’s none. And I’m typically dumb when I don’t have skin in the game. He writes that in the book, and I think most people operate that way. When you have something on the line, your mind operates differently. 

 And when you have nothing on the line, you know, most people are dumb.

Chad Franzen: 05:46

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

Haren Bhakta: 05:52

Skin in the game means that you have something on the line. You know you have something to lose and you’re going to operate, you know, with much more integrity, much more passion, much more motivation when you have something to lose. And that’s what you want in CEOs that they have something to lose if they’re wrong. And there’re countless examples of where CEOs do not have skin in the game and, you know, it ends in catastrophe. So I’ll give you a prime example.

2023 Silicon Valley Bank went to zero. Now it’s actually pretty rare for a company to go to zero while in the S&P 500. But usually the S & P will kick them out. But with Silicon Valley Bank, it happens so fast that it was in the index when it went to zero. So if you owned S&P you had exposure to Silicon Valley Bank. 

 But if I looked at the proxy filing in 2023, the year it went bankrupt, and the ownership amongst the insiders was so low that it was represented by an asterisk. So this is what happens when you have CEOs and leaders who own nothing of the organization. What they aim for is hitting the ball out of the park and aiming for bonuses. So they lever up the company, take chances that they otherwise would not have if they own a meaningful stake. And you know some when they’re wrong, it goes to zero. 

 And in that case, that’s what happened. So what you want is meaningful ownership. Of companies that you invest in by the leaders. So imagine, you know, investing in companies where leaders own nothing. You know, what they’re motivated by is not creating value. 

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

Chad Franzen: 07:51

What, how, how does the inside ownership 100 index differ from a traditional market cap weighted index like S&P 500?

Haren Bhakta: 08:00

Yeah. Well, the S&P 500 chooses a 500 companies based on its size, and they proportionally invest in each company based on that size. So, you know, quick and simple math is like if if company A is $100 million or let’s say $100 billion and company B is $50 billion, well, they’ll invest twice as much in, in company A who’s twice as big by index on alternatively, will invest based on how much the leaders of the organization own. So let’s say that same company, a leader owns, let’s say 1% of the company. And so that would be $1 billion.

And in company B, You know, leaders own 10% of the company. So that’s $5 billion. So we, you know, we would be invested significantly more in company B simply because a leader owns a more significant stake and therefore treats the company probably better and are more motivated and probably more successful because the leaders of the organization own so much more. They’re obviously more successful. You know, so what we want to do is wait for portfolios and index to leaders rather than the corporations themselves. 

 So I like to ask people a hypothetical question or a thought experiment actually. Imagine a very successful company run by very successful leaders and overnight, let’s change that, that the leaders of that organization go to brand new people. Now, would you think of that company the same or is it the same company? And, and most people would say no, but the S and P treats that company exactly the same. Whether, you know, it doesn’t matter who runs the company. 

 We would look at the company entirely differently because we’re using ownership. And, you know, we can’t just interchangeably change our people and expect the company to be the same.

Chad Franzen: 10:04

I saw that you’ve chosen to cap insider shares at 5% in the index calculation. Why is that?

Haren Bhakta: 10:11

Yeah. So we capped the ownership basically to add a skin in the game filter to S&P and remove companies that do not have skin in the game. So the idea is to avoid companies. So by adding that 5% filter or limit, I should say we don’t want to end up with a portfolio of just like, you know, couple stocks where, for example, Larry Ellison owns 40% of Oracle and Michael Dell owns 45% of Dell. We don’t want to end up with, you know, too much concentration.

So by limiting it to 5%, what we’re doing is we’re essentially avoiding companies where there is no skin in the game. And I went back, I went back to the biggest value destroyers over the last five years. And if you look at the biggest value destroyers, what they all shared in common was no ownership. So the number one value destroyer within the S&P 500 was PayPal. You know, Elon Musk and all the owners, the founders are gone. 

 So there’s no ownership left. Number two was Disney. Again no ownership at the board level or executive level. And then I think number three was Comcast. Number four. 

 Nike’s in there somewhere. And you know Phil Knight is gone. So again you know you have a world class brand of Nike that is down 70% over the last five years. We’re talking about the biggest bull market in stock market history and a world class brand. Nike is down 70% during that time frame. 

 It’s no coincidence that Phil Knight is gone, and this is what happens. It’s almost a rule when those responsible for the success of an organization leave the. The brand and culture erodes. And in Nike’s case it is clear.

Chad Franzen: 12:05

Yeah. I was just going to ask you that. What effect do you think it has on the culture or, or anything that happens inside the company when the biggest decision makers have a significant portion of their own wealth at risk?

Haren Bhakta: 12:18

Well, it’s like Jeff Bezos said, he said that if you want to be successful, you have to be able to do things that don’t make sense to most people. Now imagine a CEO who wants to do things that don’t make sense to, you know, committees and boards. They don’t have the luxury of doing things that do not make sense. So you need a CEO with significant skin in the game to do things that may not make sense to most people, but can be proven right over time. And you want to do things as well that create significant value, have to do things at the company level too, so that may not or may make the company look worse in the near term.

For example, charging lower prices. So Amazon, Walmart, Costco, these types of companies thrive by offering lower prices and thin margins and rewarding the customer for shopping there. So, you know, if you have a CEO who’s rewarded for quarterly bonuses will be incentivized to charge higher prices and, you know, get rewarded with larger bonuses. So eventually all retailers fail, right? All retailers get succeeded by, you know, the next one. 

 So all the advantages Sears had of maintaining the dominance that they had, yet they got replaced by Walmart and Sam Walton. Right. And so this is what happens to every single retailer, because eventually the cultures erode and someone else that can offer lower prices comes along and eats their lunch.

Chad Franzen: 13:58

I saw that your research says the index methodology generated about two percentage points of annual alpha versus the S&P 500 and historical testing. What do you think that is? What do you think explains that difference?

Haren Bhakta: 14:13

Yeah. Well so here’s a University of Arizona State professor who did research on all US stocks over the course of 100 years, a century of data. What he discovered was that 4% of all stocks delivered all the wealth creation during that hundred years. Nine the other 96% matched US Treasury bills. That’s incredible.

This is why it’s so hard to pick stocks for most individuals, right? So the index returns come from a small number of extreme winners. And what academia got half right is, you know, yes, it’s power law driven, but individuals are even larger power law driven as you know, a few small numbers of individuals create enormous wealth and change the world. And by indexing these leaders, we essentially invest more in these leaders and move on to the next leaders when they come along. And so I, you know, we’re getting more exposure to essentially the best companies, the, the, the big outliers. 

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