Changes in corp insider and institution shareholding ratio

This is a wide-ranging topic. You can read another blog post of mine, “Why successful manager usually not a good investor?“.

First of all, the proportion of shares held by corporate insiders is relatively high. Of course, comparably, it will have a bonus effect on confidence to the investors hold the company’s stock. Unless it is a company with a smaller market capitalization (I’m talking about it in general, with exceptions of course), in terms of large technology stocks that are well known to you and I and account for a large market value, the founders are almost no longer the CEOs, that is, most of them are run by professional managers or non-founders. These professional managers are salaried people, and at best they are just giving them more incentive stocks, so they cannot have a huge shareholding ratio or voting power (this is very different from Taiwan stocks).

Investors don’t need to regard the proportion of shares held by insiders of a company as important consideration to buy, however, as a reference to buy the stock. The reason is that I think that institutional and insiders stock holding ratio and optimistic degrees are the “results” rather than “causes”; the word consequence is more accurate. It means that individual stocks will not be a long-term long signal because there are more institutions holding them. Two types of institutions, pension funds or non-profit organizations, usually prefer stocks with lower volatility, such as the Johnson & Johnson (ticker: JNJ), Procter & Gamble (ticker: PG), Colgate-Palmolive (ticker: CL), Coca-Cola (ticker: KO). They will hold for a long time, the change is not big, and these blue chip stocks will have high dividends, which is another reason for their holdings. Let me cite another stock as an example. The corporate shareholding ratio of Visa (ticker: V) is as high as around 80%, and this is always the case long time; this means that the holders are all super-large pension funds. As far as I know, in terms of holding ration, Visa should be the most popular mega stock held by a institutional shareholders.

However, the holding logic and operating ideas of ordinary equity fund or hedge fund are quite different from those of pension funds or non-profit organizations; instead, they will chase high-volatility growth stocks and technology stocks in order to seek excess return. The investment and exit of their holdings will be very fast, and they will not hold them for a long time.

Therefore, if you don’t want to go deep into the cause or effect, and don’t want to know the reason (after all, the above is just my personal opinion), and if you are a conservative investor and cannot withstand large fluctuations, you can take institutions’ holding ratio into your buying consideration, to determine whether it can become a member of your conservative and safe investment portfolio.

In contrast, investors had better pay special attention to the shorting ratio of individual stocks.

Regarding corporate insider holdings, we only need to pay attention to when insiders buy in large quantities. Use it as a basis for judgment when necessary; for example, I have done my homework and observed it for a long time, and I want to buy it at a certain time; it just happens to be pulled back by a large margin. But there is no need to dance with it, because there are hundreds of reasons for selling, but there is only one reason for buying: to be optimistic about the company’s business development. I still want to emphasize that I don’t mean that you should spend time watching insiders’ dynamics and holdings every day, because unless it is a company with a small market value and no one pays attention, it will be reported by financial news. In addition, there are too many factors involved in the rise and fall of stock prices, and sometimes the buying points of insiders are not necessarily right. For example, in 2020, the stock price of Intel (ticker: INTC) fell 19% for the whole year (see the chart below), which was almost the worst performer among all large technology stocks. The news conference reported that the core management team under SEC supervised bought in a lot, but at least it seems that they have not made a lot of money. To enhance investors’ view of long-term holding of Intel stock should be their purpose.

Figure 1: Intel’s stock price trend chart for the whole year of 2020

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