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OklaBoston (68.26)

Insider ownership

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May 10, 2010 – Comments (10)

Has anyone here done any research into the effect of insider ownership on a stock's Star rating?

My suspicion is that a stock  with 20% or greater insider ownership would hold on to a 5-Star rating here longer than one with 10% or less. And that ones with 5% or less would fall to a 1-Star rating more often than it would rise to even 3 stars, let alone 5. 

Is my suspicion correct or not? 

I know that insider ownership is not actually part of the fromula for determining a stock's Star rating,  but also that statistically it could have an effect anyway. 

10 Comments – Post Your Own

#1) On May 10, 2010 at 6:33 PM, TSIF (99.96) wrote:

I doubt anyone's taken it to that level, but it would be an interesting experiment.

My take on insider ownership varies by the company size. Of course no one can own a considerable percent of some of the multi-billion dollar companies, (except maybe Warren...)

For mid-small caps I like to see about 8-20% insider ownership. Insider ownership USUALLY means that the insiders goals are aligned with your own. I have had issues with some companies with TOO much insider ownnership.

SOME, not all, are prone to give dividends in excess of profit, one time dividends, maybe sell the company off, etc. Not make hard decisions in bad times, etc.  VALU is an example of a company with insider ownership that was not shareholder aligned.  There are many others.

Too much insider ownership also limites the float and the stock is more volitile.

I would definitely look at insider ownership, but I would follow that with insider buying/selling. I don't have a problem with an insider selling a block from time to time, but an inside with 40-50% ownership dumping on the market frequently would disturb me.

Good luck with the analysis.

TSIF

 

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#2) On May 11, 2010 at 1:05 AM, OklaBoston (68.26) wrote:

This comment is intended to be a reply to TSIF's comment.

I doubt  I'll do any such analysis myself.My knowledge of programming is less than would be required even if I had access to greater computer power than I actually do. 

Insider ownership is, IMO, one more reason to prefer small-cap stocks to large caps. One is far more likely to find 20% plus insider ownership in a little-known small-cap than in what this site refers to as a "Water-Cooler" stock. 

Are you aware that http://www.finance.yahoo.com has a page offering information about total insider ownership of individual stocks? Lately I've been using that page to find "Cold 5-Star Stocks" that do enjoy high insider ownership, on the theory that such stocks will regain their 5-Star status fairly quickly. Check itout if you aren't already aware of it.

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#3) On May 11, 2010 at 1:35 AM, Starfirenv (< 20) wrote:

OB- I've found this useful. Explore. Lots more than a source for insider action. 52 wk lows, major players action, dcf calc, etc.
http://www.gurufocus.com/InsiderBuy.php
Regards. Good Luck.

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#4) On May 11, 2010 at 6:04 PM, TSIF (99.96) wrote:

OklaBoston, yes, I use insider ownership as one metric. Insider sales as another.  But those aren't high hitters.  I think in the long haul there can be some effect on returns, but not enough to really affect the star system here on CAPs. The star system here on Caps is based on thousands of people with all types of investment experience and methods. Some trade purely how the chart is doing, some trade on advice of others, some mix technicals, some fundamentals.  Insider ownership is a variable that I'm certain some of us look at, but very few of us in the scheme of things.  Looking at cold stocks against insider ownership, however, does sound interesting  But again, there are many more things that go into valuing a stock.  I've seen too many cases, again using excessive dividend payments as an example, or insiders not doing the best for the stockholders. Another problem can be that high insider ownership is sometimes based on a family starting the company.  Over time, there may not be family members to pass it down to who think like the founder.   Again, it's a great metric, but I would use it as just one of maybe 20 things that I would look at. 

Sounds like you're doing some great thinking!!!!

Good luck!!

starfirev,  thanks for the link.  It looks like they have some very deep information on insiders.  Tying in insiders and top investors in one place is an interesting angle. I'm maxed out on my investment advice/time right now, so $249 a year would take some time to justify, but I'll give it a closer look if I ever get caught up!!!

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#5) On May 11, 2010 at 8:26 PM, Starfirenv (< 20) wrote:

TSIF-I don't subscribe at all. After some DD, I pull this up- use ctrl F, enter a symbol in the box and ALL buys/sells are highlighted from this list. Pretty handy trick and it's free. Regards.
  http://www.gurufocus.com/stockpicks.php

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#6) On May 12, 2010 at 1:19 AM, TSIF (99.96) wrote:

Thanks starfirenv, yes that gets you the basics, similar to some other websites. It looks like they take it deeper if you subsribe.  Good luck!!!

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#7) On May 12, 2010 at 7:21 PM, OklaBoston (68.26) wrote:

 When the insiders are too closely related to each other it can be a bad thing, but when they are they don't usually go public anyway, and/or get voted out of  their jobs soon after going public.

 I've been looking into insider buying and selling informally for some time now, and have concluded that it's not as reliable an indicator as he percentage of the company the insiders are holding onto. Non-open-market transactions aren't taken sufficienly into account at most websites, probably because that information is less readily available than so many other things. 

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#8) On May 13, 2010 at 12:21 AM, OklaBoston (68.26) wrote:

starfirenv, I just registered for the free membership at gurufocus.com via the link you provided. It does look like a very interesting site, and when my personal finances improve I just might register for a premium membership. Thanks, and good luck in your own investments!

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#9) On May 13, 2010 at 1:39 AM, Starfirenv (< 20) wrote:

Right on OklaBoston- #5 comment is a great trick. Explore. Same to you. Regards.

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#10) On April 15, 2011 at 5:51 PM, OklaBoston (68.26) wrote:

Something I've discovered since posting this blog entry.

 http://www.zacks.com is essentially a very shor-term oriented website, but it's "Detailed Quotes" pages have, for many but not all stocks, information on how much insider ownership there actually is in a company. 

Since insiders sometimes exercise company granted options (which are not subject to reporting rules) and then sell only a small portion of the stock thus acquired, insider sales info from other websites can be deceptive. 

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