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[music]

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>> Uh, welcome Haren back to um

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from Inside Ownership Index on the

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podcast today. I'm actually quite

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excited about this. Uh, it's a financial

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product.

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But what is the thesis behind it, Haren?

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And please give a introduction to

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yourself.

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>> Yeah, I'm I'm Haren, the CEO and founder

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of Inside Ownership Index.

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You know, we launched an ETF. The ETF is

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essentially buying

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companies where leadership have

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alignment with shareholders and they

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have that alignment because they're

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significant owners of the business

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itself.

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And basically, we created an index

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based on the ownership of insiders.

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And tracking the performance of those

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shares.

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>> Amazing. And what made you

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want to create this? And I believe there

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is some research behind this as well,

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right?

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>> Yeah, I put out a lot of research on

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this. And now, I wanted to create this

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um because I thought of the idea while

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sitting in the Berkshire annual meeting,

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which Warren Buffett has been doing

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every year in Omaha.

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And I've became a big fan boy of of

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Warren and Charlie. And I've attended

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every meeting since 2017.

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And I put a lot of my own money and my

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clients' money in Berkshire Hathaway.

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And in 2024, where I thought of the idea

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while sitting at the meeting,

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I

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was sitting there kind of afraid

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because that was the first meeting

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Charlie Munger wasn't there. He had

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passed away. And I was afraid,

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you know, what am I going to do with my

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shares when Warren Buffett passes away?

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I don't believe in the company in the

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same way without him. I bought the

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company because or about shares in the

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company because of that trust in him.

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So,

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while I'm sitting there in the back of

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my mind with this fear

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of what am I going to do,

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at some point it clicked in me that

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the S&P 500 will buy more Berkshire when

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Warren Buffett dies.

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And I just thought, wait, why would

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anyone want Berkshire Hathaway or who

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would want more of it after Warren

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Buffett? We should want more while he's

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alive. Same goes with Tesla. Who would

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want more Tesla without Elon Musk?

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Who you know, we should want more Tesla

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while he's there. I don't think anyone

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would want Tesla without Elon Musk. And

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then you have Meta. Who would want Meta

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without Mark Zuckerberg, right? So, this

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process the S&P does is called free

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float adjusting. They exclude the shares

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held by controlling shareholders and

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when they retire, sell, die,

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those shares become what's called free

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floating and then they expand

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the calculation

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for

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uh their ownership. Basically, after

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they they sell or die or or retire. And

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this

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is the opposite direction of what anyone

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would want. We want more of these

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companies while they're there and less

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so when they're gone.

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And uh so, I came home from Omaha and

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looked into this,

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you know, what if we weighted the

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portfolio according to their ownership?

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Would we have outperformed? And

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I could not find the inside ownership

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data anywhere. I went to all the data

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providers. I went to Capital IQ,

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Bloomberg, FactSet, everyone. Nobody had

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it. Now, the data's there in the proxy

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filings.

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So, I had to manually go through 20

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years of all 500 constituents of the S&P

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to get this data. It was about 20,000

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different proxy filings manually and

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aggregated this data. The data's there,

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just no one had aggregated it. So, I'm

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currently the only one with this inside

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ownership

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data going back back that far.

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>> Interesting.

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>> Yeah.

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>> Yeah, and and

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how so so the idea obviously is to have

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something that's sustainable and

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performs,

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right? And and gives you a yield.

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>> That's right. Now, index funds, academia

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got it

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uh half correct. They they said, "Well,

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we should just be buying low-cost index

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funds." And they index to the

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corporation. Now, I

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figured out something a little bit more

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unique that's actually better. We should

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be indexing

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to the leaders of the organization

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rather than the corporations themselves.

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Corporations, all they are is a group of

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people, right? We can't

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we can't just um interchangeably change

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people out of an organization and call

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that organization the same.

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So, that that that's actually a thought

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experiment I ask people is imagine a

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very successful company run by very

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successful leaders. Now,

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overnight, let's change that

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that organization. Let's Let's change

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the leaders to new leaders, all new

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leaders. Let's keep the logo the same,

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the the building the same, but let's

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change out all the leaders of the

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organization. Would you call that the

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same company?

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You know, and most people would say no,

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right?

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>> Now, how does it work when somebody

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leaves the company and they sell their

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shares? Does Does

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Do you have to go and recalculate and

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reaggregate all that data?

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>> Right. So, we don't have to go back in

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the previous quarters, but every quarter

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we're we're rebalancing. So, we go

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through the proxy filings

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if there are any for each company

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um for all 500 companies that rebalance

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the portfolio based on current

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reported ownership.

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>> Interesting.

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>> Yeah. And most of the time like large

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positions can leave the portfolio.

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Um most of the time that happens because

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of uh death

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or retirement. Most of these

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um CEOs and and chairman of the boards

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type roles where they have all the

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ownership

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they usually don't sell their entire

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stake or sell large

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parts of it. What they do is retire or

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die and then they are no longer insiders

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that no longer overseeing the culture of

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the company

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and then we rotate out of those

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companies through through the rebalance.

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>> So, you've gone live on the New York

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Stock Exchange now.

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>> That's right. The ETF is now live. The

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ticker symbol is OWN.

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>> That's amazing. How did you get that?

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>> Yeah, I was shocked that it wasn't

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available. I'm I'm I'm really happy. We

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were

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looking around uh for ticker symbols

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and OWN just made perfect sense and we

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were shocked that it was available and

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and very happy about that. I think it it

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adds to our brand.

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>> Very cool. And so, I also saw some news

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with Corgi. What What What was that?

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>> So, Corgi we partnered with Corgi to

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launch this ETF. Now, Corgi is an AI

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financial company. They are really

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disrupting the entire space for

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financial services. Now, their primary

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business is insurance. Now, all

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insurance is

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is

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a long document, right? It's a

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100-page

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piece of paper with

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um natural language on it. Now,

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the technology exists

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to write these documents and to read

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them.

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Now, which didn't exist before. Now,

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insurance has largely been done by

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humans.

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Even the calculation of premiums, to

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this day, most insurance companies are

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using an actuary that uses a pen and

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paper, not even not even software. Now,

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now the technology with AI exists to

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read these documents and and uh rewrite

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them

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when necessary. So, they

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bought an insurance company and are

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replacing all the humans involved with

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AI agents.

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>> Mhm.

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>> That communicate with each other, and

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they're able to offer insurance to the

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end

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um insured

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much cheaper than any other company

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because they're leveraging AI more

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aggressively than any any other company

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is, right? Most companies get ingrained

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in a way of doing business, and they're

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not able to adapt. And that's why new

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businesses always come and overtake

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overtake the incumbents, right? I mean,

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if we just look at the S&P 500, look at

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the largest companies in the world.

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They're most They all come from the US,

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for one, but they were all founded in

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our lifetime or near it.

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So,

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you know, all the the competitive

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advantages some legacy companies have,

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but it's always new companies that come

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up and dominate. Now, we're going to

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have three IPOs that are going to

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um be completely new companies as well.

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As SpaceX which was founded

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um you know, after the year 2000 and

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Anthropic and Open AI all all pretty

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much new companies. So,

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you know, this is how

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the world has always been where it's new

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companies that come out and overtake the

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old and is is done by owners.

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>> So, yeah, you don't hear much more about

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IBM and and and players like that

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anymore, right? Like so

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>> Right. Actually have a great example

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with IBM IBM.

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Now,

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I asked people to you know, what is the

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most dominant company to ever exist?

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And to me that answer's IBM. IBM

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And when I say dominant, I I I mean by

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relative size. So, IBM in the year 1984

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was more than two times large almost two

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and a half times larger than the next

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largest company in the entire world. So,

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this would be like Nvidia today being

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$12 trillion.

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It was dominant and no one could

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compete. Now,

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a lot of people don't know the history

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of management at IBM, but Thomas Watson

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Sr. was the founder of IBM 1911. Long

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time ago, but it was actually his son,

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Thomas Watson Jr., that took IBM public.

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And the service CEO in the '70s.

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Now 1984

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he was on the board. So, the ownership

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was there overseeing the company. 1984

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peak IBM.

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He retires in 1984 and by 1992,

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just eight years later, IBM is not even

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in the top 10.

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Today, IBM is not even in the top 25.

280
00:11:26,520 --> 00:11:29,920
This is what happens when those

281
00:11:28,080 --> 00:11:32,360
responsible for the success of an

282
00:11:29,920 --> 00:11:34,200
organization leave.

283
00:11:32,360 --> 00:11:35,000
>> So, this kind of proves your thesis,

284
00:11:34,200 --> 00:11:37,640
really.

285
00:11:35,000 --> 00:11:42,760
>> Exactly. Exactly. So,

286
00:11:37,640 --> 00:11:46,240
um monopolies get built by owners, and

287
00:11:42,760 --> 00:11:49,040
they slowly erode once they're gone.

288
00:11:46,240 --> 00:11:51,880
>> Interesting. So, what kind of companies

289
00:11:49,040 --> 00:11:54,040
make your list, Taren? Um tell me about

290
00:11:51,880 --> 00:11:56,200
some of them, and what numbers are we

291
00:11:54,040 --> 00:11:58,040
talking about here?

292
00:11:56,200 --> 00:12:00,080
>> Yes, so we're the essentially the S&P

293
00:11:58,040 --> 00:12:02,840
500

294
00:12:00,080 --> 00:12:07,480
with the skin in the game factor. So, we

295
00:12:02,840 --> 00:12:10,800
re-weight the S&P 500 based on ownership

296
00:12:07,480 --> 00:12:13,760
by the leaders. So, the companies

297
00:12:10,800 --> 00:12:20,000
in the index are exactly the same, but

298
00:12:13,760 --> 00:12:21,000
we take the top 100 from the S&P 500.

299
00:12:20,000 --> 00:12:23,080
So,

300
00:12:21,000 --> 00:12:25,560
it is going to be the same constituents

301
00:12:23,080 --> 00:12:27,920
as the S&P, but re-weighted. Now, we're

302
00:12:25,560 --> 00:12:30,000
going to have more concentration.

303
00:12:27,920 --> 00:12:33,400
Now, indexing, what it does

304
00:12:30,000 --> 00:12:37,040
is it gives you exposure to the largest

305
00:12:33,400 --> 00:12:39,040
companies, and it doesn't sell.

306
00:12:37,040 --> 00:12:41,640
So, this is why that the index funds do

307
00:12:39,040 --> 00:12:43,839
so well is because they don't sell the

308
00:12:41,640 --> 00:12:45,400
the winners, and they let them run.

309
00:12:43,839 --> 00:12:48,000
Now,

310
00:12:45,400 --> 00:12:50,240
the winners are actually more

311
00:12:48,000 --> 00:12:52,400
individuals in the companies themselves.

312
00:12:50,240 --> 00:12:54,680
If you look at the average company,

313
00:12:52,400 --> 00:12:56,600
and look at the extreme winners, like

314
00:12:54,680 --> 00:12:59,920
Nvidia Apple

315
00:12:56,600 --> 00:13:01,600
uh Google, Amazon, Tesla, right? There's

316
00:12:59,920 --> 00:13:03,920
there's a big difference between average

317
00:13:01,600 --> 00:13:05,280
and great, but now look at the average

318
00:13:03,920 --> 00:13:07,320
leader,

319
00:13:05,280 --> 00:13:09,920
and compare them to the greatest

320
00:13:07,320 --> 00:13:13,920
leaders. That difference is much larger.

321
00:13:09,920 --> 00:13:17,160
The power law is significant. So, when

322
00:13:13,920 --> 00:13:19,880
we index to the leaders, we get more

323
00:13:17,160 --> 00:13:23,360
exposure to the the extreme right tail

324
00:13:19,880 --> 00:13:27,520
of the distribution. We get much higher

325
00:13:23,360 --> 00:13:31,360
uh returns by indexing to the leaders.

326
00:13:27,520 --> 00:13:35,560
>> So so interesting. So this is this is a

327
00:13:31,360 --> 00:13:37,600
lot this isn't a here's a full global

328
00:13:35,560 --> 00:13:40,600
list of companies and find the ones that

329
00:13:37,600 --> 00:13:42,680
have the most uh public ownership or or

330
00:13:40,600 --> 00:13:45,200
ownership. It it's it's like let's take

331
00:13:42,680 --> 00:13:48,080
the subset of the S&P

332
00:13:45,200 --> 00:13:49,720
and then within that let's re-weight on

333
00:13:48,080 --> 00:13:53,200
the S&P

334
00:13:49,720 --> 00:13:56,760
and rank them there and

335
00:13:53,200 --> 00:13:58,800
I guess the idea is to beat the S&P?

336
00:13:56,760 --> 00:14:01,640
>> Yes, that's the idea. Over time. Now,

337
00:13:58,800 --> 00:14:03,360
this is a long-term finding. Now, it

338
00:14:01,640 --> 00:14:05,960
doesn't outperform the S&P every year.

339
00:14:03,360 --> 00:14:07,520
It doesn't perform it outperform every

340
00:14:05,960 --> 00:14:09,520
month but

341
00:14:07,520 --> 00:14:12,360
what we see is that over long periods of

342
00:14:09,520 --> 00:14:14,800
time these extreme winners

343
00:14:12,360 --> 00:14:19,440
come out of owner-led

344
00:14:14,800 --> 00:14:23,200
companies. And um I did a study recently

345
00:14:19,440 --> 00:14:26,120
where I looked at uh a term called 100

346
00:14:23,200 --> 00:14:28,320
bagger. 100 bagger means that a stock

347
00:14:26,120 --> 00:14:32,040
went up 100 times your initial

348
00:14:28,320 --> 00:14:34,960
investment. So you would invest $10,000,

349
00:14:32,040 --> 00:14:39,600
it becomes over a million. Now this I

350
00:14:34,960 --> 00:14:41,920
found between the year 2000 to to 2025,

351
00:14:39,600 --> 00:14:44,680
I found 21 of them.

352
00:14:41,920 --> 00:14:49,280
And I looked at all 21 of them what they

353
00:14:44,680 --> 00:14:51,839
look like before they went on that

354
00:14:49,280 --> 00:14:53,080
100 bagger journey.

355
00:14:51,839 --> 00:14:55,080
And

356
00:14:53,080 --> 00:14:58,680
all

357
00:14:55,080 --> 00:15:00,839
but two. So 19 of the 21

358
00:14:58,680 --> 00:15:03,520
had one thing in common.

359
00:15:00,839 --> 00:15:05,240
They all had ownership

360
00:15:03,520 --> 00:15:05,520
above 5%.

361
00:15:05,240 --> 00:15:07,160
>> Uh-huh.

362
00:15:05,520 --> 00:15:09,839
>> By the insiders. So insiders own

363
00:15:07,160 --> 00:15:12,960
significant stakes in the companies that

364
00:15:09,839 --> 00:15:15,640
had those huge outlier returns. Now,

365
00:15:12,960 --> 00:15:17,480
they were not all founder-led.

366
00:15:15,640 --> 00:15:18,720
They were not

367
00:15:17,480 --> 00:15:21,240
um

368
00:15:18,720 --> 00:15:22,160
it was not even necessarily by the CEO.

369
00:15:21,240 --> 00:15:23,760
And it

370
00:15:22,160 --> 00:15:26,240
they weren't necessarily new companies

371
00:15:23,760 --> 00:15:28,320
either. Some like Tractor Supply, they

372
00:15:26,240 --> 00:15:31,600
were very old companies not run by

373
00:15:28,320 --> 00:15:34,520
founders, but there was significant

374
00:15:31,600 --> 00:15:37,360
ownership by the leaders.

375
00:15:34,520 --> 00:15:38,440
Berkshire Hathaway, for example,

376
00:15:37,360 --> 00:15:40,040
it's not a hundred bagger over the last

377
00:15:38,440 --> 00:15:42,240
20 years, but it is

378
00:15:40,040 --> 00:15:43,440
like a you know, more than 10,000 bagger

379
00:15:42,240 --> 00:15:46,000
over the last

380
00:15:43,440 --> 00:15:48,160
55 years. Um

381
00:15:46,000 --> 00:15:50,280
that Warren Buffett is not the founder

382
00:15:48,160 --> 00:15:53,000
of Berkshire. He he took control in

383
00:15:50,280 --> 00:15:54,240
1965. So, it doesn't have to be a

384
00:15:53,000 --> 00:15:56,560
founder. Howard Schultz is not the

385
00:15:54,240 --> 00:15:59,160
founder of Starbucks. He He bought

386
00:15:56,560 --> 00:16:00,920
Starbucks when it had 11 stores. So,

387
00:15:59,160 --> 00:16:02,840
what we're looking for is owners,

388
00:16:00,920 --> 00:16:04,800
owner-operators.

389
00:16:02,840 --> 00:16:07,840
And you know,

390
00:16:04,800 --> 00:16:10,000
the main reason why ownership matters is

391
00:16:07,840 --> 00:16:12,700
the culture of the company remains

392
00:16:10,000 --> 00:16:14,680
intact. They can think long-term. If

393
00:16:12,700 --> 00:16:17,920
[snorts] there's no ownership, they're

394
00:16:14,680 --> 00:16:20,040
almost forced to think quarterly and

395
00:16:17,920 --> 00:16:22,680
long-term value creation is done in

396
00:16:20,040 --> 00:16:27,360
thinking in decades, not in quarterly

397
00:16:22,680 --> 00:16:30,120
thinking. In fact, very often these CEOs

398
00:16:27,360 --> 00:16:32,360
that are creating enormous value make

399
00:16:30,120 --> 00:16:35,080
the company look less desirable in the

400
00:16:32,360 --> 00:16:37,480
near term. For example, Jeff Bezos at

401
00:16:35,080 --> 00:16:40,120
Amazon didn't show profit for a long

402
00:16:37,480 --> 00:16:41,640
time at Amazon. But he didn't care. He

403
00:16:40,120 --> 00:16:44,480
knew he was investing in something

404
00:16:41,640 --> 00:16:47,440
that's going to create enormous value.

405
00:16:44,480 --> 00:16:51,240
And um by doing that, you actually

406
00:16:47,440 --> 00:16:51,880
give value to your customers first. So,

407
00:16:51,240 --> 00:16:54,760
an

408
00:16:51,880 --> 00:16:57,839
extreme customer-centric company where

409
00:16:54,760 --> 00:16:59,920
you distribute a lot of your profits

410
00:16:57,839 --> 00:17:01,720
back to your customers. A lot of people

411
00:16:59,920 --> 00:17:03,360
don't talk about this, but that's what

412
00:17:01,720 --> 00:17:06,720
Amazon did, and that's what Costco did

413
00:17:03,360 --> 00:17:09,240
as well, where you're constantly

414
00:17:06,720 --> 00:17:11,120
figuring out ways to give profits back

415
00:17:09,240 --> 00:17:12,520
to your customers in the form of lower

416
00:17:11,120 --> 00:17:15,400
prices

417
00:17:12,520 --> 00:17:16,480
or or better services. So, uh companies

418
00:17:15,400 --> 00:17:18,520
with

419
00:17:16,480 --> 00:17:20,920
no ownership, they're judged quarterly

420
00:17:18,520 --> 00:17:22,839
and they think quarterly, so they don't

421
00:17:20,920 --> 00:17:23,959
do these steps

422
00:17:22,839 --> 00:17:26,560
to

423
00:17:23,959 --> 00:17:28,600
that make the company look worse, but

424
00:17:26,560 --> 00:17:29,880
but long-term better.

425
00:17:28,600 --> 00:17:32,680
>> I don't know if you know off the top of

426
00:17:29,880 --> 00:17:35,280
your head, but um I just saw

427
00:17:32,680 --> 00:17:37,160
uh some price increases from Microsoft

428
00:17:35,280 --> 00:17:38,960
and Apple on their hardware because of

429
00:17:37,160 --> 00:17:41,040
memory prices.

430
00:17:38,960 --> 00:17:42,920
I wonder what their inside ownership

431
00:17:41,040 --> 00:17:44,760
percentages are like.

432
00:17:42,920 --> 00:17:47,160
>> That's a great example, so those two

433
00:17:44,760 --> 00:17:50,240
will For one, Apple is the one example

434
00:17:47,160 --> 00:17:53,320
that has continued to do well despite

435
00:17:50,240 --> 00:17:55,640
a large part of the ownership leaving.

436
00:17:53,320 --> 00:17:59,440
Now, Steve Jobs passed away,

437
00:17:55,640 --> 00:18:01,920
um but I'll note that Tim Cook and

438
00:17:59,440 --> 00:18:03,800
another guy named Art Levinson,

439
00:18:01,920 --> 00:18:06,440
the chairman of the board of Apple, they

440
00:18:03,800 --> 00:18:09,360
own significant parts of Apple, so

441
00:18:06,440 --> 00:18:12,800
they're long-time employees who have

442
00:18:09,360 --> 00:18:15,760
developed ownership. So, Apple is in and

443
00:18:12,800 --> 00:18:17,280
has been in the inside ownership index.

444
00:18:15,760 --> 00:18:19,800
So,

445
00:18:17,280 --> 00:18:21,840
but despite Steve Jobs, they've been

446
00:18:19,800 --> 00:18:23,280
able to maintain their competitive

447
00:18:21,840 --> 00:18:25,880
advantage,

448
00:18:23,280 --> 00:18:29,080
but I'll note one thing that

449
00:18:25,880 --> 00:18:31,040
they have not invested in the future.

450
00:18:29,080 --> 00:18:33,360
They've only leveraged the iPhone. They

451
00:18:31,040 --> 00:18:35,560
They're not investing in AI,

452
00:18:33,360 --> 00:18:39,160
and they're not

453
00:18:35,560 --> 00:18:42,680
participating in any kind of

454
00:18:39,160 --> 00:18:44,480
uh future investment.

455
00:18:42,680 --> 00:18:46,240
They're not preparing for disruption,

456
00:18:44,480 --> 00:18:48,880
essentially. They're They're going to be

457
00:18:46,240 --> 00:18:50,080
outside the system once the disruptions

458
00:18:48,880 --> 00:18:52,480
happen

459
00:18:50,080 --> 00:18:54,120
in the cell phone space.

460
00:18:52,480 --> 00:18:56,720
Perfect example I have of that is like

461
00:18:54,120 --> 00:18:59,200
AT&T. Now, AT&T had a

462
00:18:56,720 --> 00:19:00,920
government-regulated monopoly

463
00:18:59,200 --> 00:19:03,800
in the '70s. It was the largest company

464
00:19:00,920 --> 00:19:05,480
in the world. And when you have

465
00:19:03,800 --> 00:19:07,560
monopolies that are built around

466
00:19:05,480 --> 00:19:09,960
government regulation,

467
00:19:07,560 --> 00:19:13,080
um innovation comes from outside the

468
00:19:09,960 --> 00:19:16,640
system. So, the cell phone was invented

469
00:19:13,080 --> 00:19:18,360
outside of AT&T and the telephone

470
00:19:16,640 --> 00:19:19,840
system.

471
00:19:18,360 --> 00:19:22,800
So,

472
00:19:19,840 --> 00:19:25,440
when a disruption takes place with Apple

473
00:19:22,800 --> 00:19:26,920
in the cell phone space,

474
00:19:25,440 --> 00:19:28,880
I don't know when, but there will be a

475
00:19:26,920 --> 00:19:30,400
disruption at some point. Now, it's

476
00:19:28,880 --> 00:19:32,160
probably going to come from outside of

477
00:19:30,400 --> 00:19:34,960
Apple.

478
00:19:32,160 --> 00:19:35,200
They won't replace the iPhone.

479
00:19:34,960 --> 00:19:37,880
>> Yeah.

480
00:19:35,200 --> 00:19:39,440
>> Um somebody else will.

481
00:19:37,880 --> 00:19:41,520
>> Now, how does

482
00:19:39,440 --> 00:19:43,120
how does the I'm just going back to

483
00:19:41,520 --> 00:19:44,280
something that you said previously just

484
00:19:43,120 --> 00:19:47,120
because

485
00:19:44,280 --> 00:19:49,880
it's it's it's stirring a a question

486
00:19:47,120 --> 00:19:54,320
that I have, but like how does

487
00:19:49,880 --> 00:19:56,160
getting outsize returns from 100 baggers

488
00:19:54,320 --> 00:19:58,840
how does the Inside Ownership Index

489
00:19:56,160 --> 00:19:59,440
leverage that? Like, how does it

490
00:19:58,840 --> 00:20:01,760
Yeah.

491
00:19:59,440 --> 00:20:04,000
>> Well, for one, now these outsize returns

492
00:20:01,760 --> 00:20:04,920
have come from owner-operated companies,

493
00:20:04,000 --> 00:20:05,160
right?

494
00:20:04,920 --> 00:20:06,600
>> Right.

495
00:20:05,160 --> 00:20:08,400
>> So, for example, the largest company in

496
00:20:06,600 --> 00:20:11,760
the world now is Nvidia, an

497
00:20:08,400 --> 00:20:14,720
owner-operated company. Right? Um if we

498
00:20:11,760 --> 00:20:17,040
look back at 2018 and we try to predict

499
00:20:14,720 --> 00:20:19,560
which company is going to overtake

500
00:20:17,040 --> 00:20:20,680
Microsoft and Apple,

501
00:20:19,560 --> 00:20:21,880
now,

502
00:20:20,680 --> 00:20:23,800
you know,

503
00:20:21,880 --> 00:20:25,360
it would have been hard to guess, but I

504
00:20:23,800 --> 00:20:27,440
could have told you

505
00:20:25,360 --> 00:20:30,400
with almost a surety that it was going

506
00:20:27,440 --> 00:20:30,840
to come from an owner-operated company.

507
00:20:30,400 --> 00:20:31,480
>> Okay.

508
00:20:30,840 --> 00:20:34,440
>> So,

509
00:20:31,480 --> 00:20:37,160
so the index overweights

510
00:20:34,440 --> 00:20:39,400
essentially companies run by owners

511
00:20:37,160 --> 00:20:40,320
because we're tracking

512
00:20:39,400 --> 00:20:41,840
ownership.

513
00:20:40,320 --> 00:20:43,800
>> Within the S&P?

514
00:20:41,840 --> 00:20:45,480
>> Within the S&P. So, the largest

515
00:20:43,800 --> 00:20:48,240
companies in the world will always

516
00:20:45,480 --> 00:20:50,240
eventually be

517
00:20:48,240 --> 00:20:52,040
owner-operated. So, now, whoever

518
00:20:50,240 --> 00:20:53,960
replaces Nvidia

519
00:20:52,040 --> 00:20:56,040
someday,

520
00:20:53,960 --> 00:20:57,520
most likely,

521
00:20:56,040 --> 00:20:59,720
I'm very confident that's going to come

522
00:20:57,520 --> 00:21:02,560
from an owner-operated company.

523
00:20:59,720 --> 00:21:04,160
>> Okay. So, obviously you're you're

524
00:21:02,560 --> 00:21:06,600
hanging your hat here on the human

525
00:21:04,160 --> 00:21:10,080
angle, which I totally get. Um

526
00:21:06,600 --> 00:21:11,600
it's alignment of incentives. Humans are

527
00:21:10,080 --> 00:21:12,200
incredibly

528
00:21:11,600 --> 00:21:15,360
uh

529
00:21:12,200 --> 00:21:17,240
ingenious people. Um,

530
00:21:15,360 --> 00:21:19,000
now what happens on the outs downside?

531
00:21:17,240 --> 00:21:21,600
Like we are human and we can make

532
00:21:19,000 --> 00:21:23,040
mistakes. Uh,

533
00:21:21,600 --> 00:21:25,000
is there

534
00:21:23,040 --> 00:21:28,200
a downside risk

535
00:21:25,000 --> 00:21:28,200
for it being

536
00:21:28,240 --> 00:21:31,480
>> That's a great question. Now, I did a

537
00:21:29,560 --> 00:21:34,040
study also. Now,

538
00:21:31,480 --> 00:21:36,240
I looked at S&P 500

539
00:21:34,040 --> 00:21:39,920
over the last 5 years and I looked to

540
00:21:36,240 --> 00:21:42,360
see who were the biggest value

541
00:21:39,920 --> 00:21:43,960
destroyers.

542
00:21:42,360 --> 00:21:46,280
So, it's funny how the the the largest

543
00:21:43,960 --> 00:21:47,920
outliers came from high ownership

544
00:21:46,280 --> 00:21:50,080
companies and

545
00:21:47,920 --> 00:21:51,960
the study I did with the the largest

546
00:21:50,080 --> 00:21:55,480
value destroyers,

547
00:21:51,960 --> 00:21:58,040
the top five all come from companies

548
00:21:55,480 --> 00:21:59,800
with very little inside ownership. So,

549
00:21:58,040 --> 00:22:01,640
the number one

550
00:21:59,800 --> 00:22:03,120
value destroyer

551
00:22:01,640 --> 00:22:05,000
was PayPal.

552
00:22:03,120 --> 00:22:07,880
PayPal was founded by Elon Musk, but

553
00:22:05,000 --> 00:22:09,560
he's no longer part of the company, so

554
00:22:07,880 --> 00:22:13,160
um

555
00:22:09,560 --> 00:22:15,800
PayPal Comcast Disney

556
00:22:13,160 --> 00:22:18,240
even Nike was one of the biggest value

557
00:22:15,800 --> 00:22:20,800
destroyers in the S&P.

558
00:22:18,240 --> 00:22:22,840
You know, Phil Knight, the founder of

559
00:22:20,800 --> 00:22:24,800
Nike, is no longer part of the company.

560
00:22:22,840 --> 00:22:27,040
So, again, this is what happens when

561
00:22:24,800 --> 00:22:28,960
those responsible for the success of an

562
00:22:27,040 --> 00:22:31,440
organization leave, the companies

563
00:22:28,960 --> 00:22:33,840
typically go through a decay and slowly

564
00:22:31,440 --> 00:22:36,920
erode. It's not It's not overnight, but

565
00:22:33,840 --> 00:22:39,080
you know, Nike stock I think is down

566
00:22:36,920 --> 00:22:40,720
4 years in a row,

567
00:22:39,080 --> 00:22:42,520
three to four years in a row. It's down

568
00:22:40,720 --> 00:22:45,320
70%

569
00:22:42,520 --> 00:22:49,240
and it's down 70% in in the largest bull

570
00:22:45,320 --> 00:22:52,160
market in history. So, we have a company

571
00:22:49,240 --> 00:22:56,640
a world-class brand like Nike should not

572
00:22:52,160 --> 00:22:58,840
be down in a 5-year bull market or

573
00:22:56,640 --> 00:23:00,920
6-year bull market in in what we've

574
00:22:58,840 --> 00:23:02,480
experienced since COVID. I I

575
00:23:00,920 --> 00:23:04,720
this is the largest run in history, and

576
00:23:02,480 --> 00:23:05,920
yet Nike, a world-class brand, is down

577
00:23:04,720 --> 00:23:06,560
70%.

578
00:23:05,920 --> 00:23:07,920
>> Wow.

579
00:23:06,560 --> 00:23:10,760
>> So,

580
00:23:07,920 --> 00:23:12,560
the best analogy I have

581
00:23:10,760 --> 00:23:16,440
is

582
00:23:12,560 --> 00:23:20,360
what I call a hired CEO.

583
00:23:16,440 --> 00:23:23,800
I like to compare them to a zoo lion.

584
00:23:20,360 --> 00:23:26,200
A zoo lion gets fed every day whether

585
00:23:23,800 --> 00:23:28,600
it's successfully hunts or not.

586
00:23:26,200 --> 00:23:30,320
In the same way, a hired CEO gets their

587
00:23:28,600 --> 00:23:32,000
base salary,

588
00:23:30,320 --> 00:23:34,960
quarterly bonus,

589
00:23:32,000 --> 00:23:35,960
and very often a golden parachute.

590
00:23:34,960 --> 00:23:38,160
So,

591
00:23:35,960 --> 00:23:40,760
I like to compare a hired, I'm sorry, a

592
00:23:38,160 --> 00:23:43,080
owner-operator CEO

593
00:23:40,760 --> 00:23:44,880
a wild lion. Now, they're trained to

594
00:23:43,080 --> 00:23:46,720
survive. They're already proven they can

595
00:23:44,880 --> 00:23:49,880
survive in the world,

596
00:23:46,720 --> 00:23:52,520
right? They created the very success of

597
00:23:49,880 --> 00:23:55,560
their organization, and

598
00:23:52,520 --> 00:23:58,840
um if they make mistakes,

599
00:23:55,560 --> 00:24:00,840
they don't eat. They feel the pain, and

600
00:23:58,840 --> 00:24:04,200
that's what you want in a CEO. You want

601
00:24:00,840 --> 00:24:06,760
them to feel the pain of mistakes. And

602
00:24:04,200 --> 00:24:09,800
when you have a hired CEO, they get

603
00:24:06,760 --> 00:24:11,640
ingrained in into a way of thinking, and

604
00:24:09,800 --> 00:24:12,680
they don't feel the pain until it's too

605
00:24:11,640 --> 00:24:14,760
late.

606
00:24:12,680 --> 00:24:18,520
You know, one example I have is uh

607
00:24:14,760 --> 00:24:20,600
Blockbuster. So, Blockbuster had a zoo

608
00:24:18,520 --> 00:24:23,480
lion as a CEO,

609
00:24:20,600 --> 00:24:25,960
and they saw,

610
00:24:23,480 --> 00:24:28,600
you know, these late fees in DVD

611
00:24:25,960 --> 00:24:30,160
rentals, and they thought, well, you

612
00:24:28,600 --> 00:24:31,920
know, we don't want to get rid of these

613
00:24:30,160 --> 00:24:34,280
late fees cuz we make so much money from

614
00:24:31,920 --> 00:24:36,840
it. So, they suppress

615
00:24:34,280 --> 00:24:38,760
innovation. They suppress what the

616
00:24:36,840 --> 00:24:41,080
customers desire.

617
00:24:38,760 --> 00:24:43,160
And when you have owners who are more

618
00:24:41,080 --> 00:24:44,800
like artisans, owners are like artisans.

619
00:24:43,160 --> 00:24:47,360
They care

620
00:24:44,800 --> 00:24:50,600
deeply about the customer, and they're

621
00:24:47,360 --> 00:24:52,800
figuring out ways to give value to them,

622
00:24:50,600 --> 00:24:54,720
and not just profits.

623
00:24:52,800 --> 00:24:58,200
And that's what creates long-term value

624
00:24:54,720 --> 00:25:00,400
is obsessing over the customer.

625
00:24:58,200 --> 00:25:02,160
>> And I I would assume like even when

626
00:25:00,400 --> 00:25:04,520
times are good,

627
00:25:02,160 --> 00:25:08,280
like the zoo CEO would kind of rest on

628
00:25:04,520 --> 00:25:10,760
his laurels where maybe they like the

629
00:25:08,280 --> 00:25:13,120
the the wild CEO would just kind of like

630
00:25:10,760 --> 00:25:14,680
double down or take more risk during the

631
00:25:13,120 --> 00:25:16,600
good times type of thing, right?

632
00:25:14,680 --> 00:25:18,800
>> Exactly. Someone had brought up to me

633
00:25:16,600 --> 00:25:20,560
recently that the Kodak, for example,

634
00:25:18,800 --> 00:25:22,560
they invented

635
00:25:20,560 --> 00:25:24,360
the digital camera.

636
00:25:22,560 --> 00:25:28,520
Believe it or not, but they suppressed

637
00:25:24,360 --> 00:25:30,880
it because the zoo lion

638
00:25:28,520 --> 00:25:32,520
was making too much money from film. So,

639
00:25:30,880 --> 00:25:34,480
they suppressed that innovation that

640
00:25:32,520 --> 00:25:35,800
they actually developed.

641
00:25:34,480 --> 00:25:36,920
So, they could have been the leader in

642
00:25:35,800 --> 00:25:39,080
in

643
00:25:36,920 --> 00:25:39,440
um, you know, the digital camera space.

644
00:25:39,080 --> 00:25:41,720
>> Yeah.

645
00:25:39,440 --> 00:25:45,320
>> And, you know, they essentially went

646
00:25:41,720 --> 00:25:47,840
bankrupt because of short-term thinking.

647
00:25:45,320 --> 00:25:47,920
>> And routine thinking, I guess, too. Like

648
00:25:47,840 --> 00:25:49,720
uh

649
00:25:47,920 --> 00:25:51,720
>> Exactly. Um,

650
00:25:49,720 --> 00:25:54,200
another example I have, I think um, Mark

651
00:25:51,720 --> 00:25:57,600
Anderson was talking about how

652
00:25:54,200 --> 00:26:00,280
for 100 years, the rocket

653
00:25:57,600 --> 00:26:02,600
would launch stuff into space.

654
00:26:00,280 --> 00:26:05,120
And when it came back, it just dropped

655
00:26:02,600 --> 00:26:07,840
in the ocean and it was never reused.

656
00:26:05,120 --> 00:26:09,480
Elon Musk's Elon Musk said, "Well, what

657
00:26:07,840 --> 00:26:11,720
if we just land these rockets on their

658
00:26:09,480 --> 00:26:14,480
butt and reuse them?" So, then he

659
00:26:11,720 --> 00:26:17,080
collapsed the entire cost structure of

660
00:26:14,480 --> 00:26:19,320
launching rockets by reusing the the

661
00:26:17,080 --> 00:26:20,680
rocket. So, they brought down the cost

662
00:26:19,320 --> 00:26:22,880
by um,

663
00:26:20,680 --> 00:26:26,480
I believe 90%

664
00:26:22,880 --> 00:26:29,200
by a a magnitude of 10.

665
00:26:26,480 --> 00:26:31,120
So, what they've been able to do is

666
00:26:29,200 --> 00:26:33,960
create a monopoly around rockets. Now,

667
00:26:31,120 --> 00:26:36,400
you have these hired CEOs in the rocket

668
00:26:33,960 --> 00:26:38,960
industry who have thought completely

669
00:26:36,400 --> 00:26:40,440
within the box. Then someone like Elon

670
00:26:38,960 --> 00:26:43,280
Musk comes out, you know, and thinks

671
00:26:40,440 --> 00:26:46,360
completely outside of the box and drives

672
00:26:43,280 --> 00:26:48,160
value for the end customers,

673
00:26:46,360 --> 00:26:51,840
essentially.

674
00:26:48,160 --> 00:26:54,680
>> I have to say, Aaron, um

675
00:26:51,840 --> 00:26:56,200
I am going to look up this index and

676
00:26:54,680 --> 00:26:58,040
probably put some money into it because

677
00:26:56,200 --> 00:26:59,640
I really like the thesis.

678
00:26:58,040 --> 00:27:02,200
>> That's awesome. Yeah, so the ticker

679
00:26:59,640 --> 00:27:05,200
symbol is OWN, the website is

680
00:27:02,200 --> 00:27:05,200
insideownership.com.

681
00:27:05,960 --> 00:27:11,440
>> Well, we will leave on that and I will,

682
00:27:09,320 --> 00:27:13,320
you know, encourage my audience to kind

683
00:27:11,440 --> 00:27:15,720
of like understand the concepts behind

684
00:27:13,320 --> 00:27:18,200
this. It It's It's one of the most, I

685
00:27:15,720 --> 00:27:20,160
think, basic type of understanding. This

686
00:27:18,200 --> 00:27:22,200
is alignment of incentives. It's kind of

687
00:27:20,160 --> 00:27:24,520
like what the the crypto industry was

688
00:27:22,200 --> 00:27:26,120
based on and and and

689
00:27:24,520 --> 00:27:27,200
this kind of just takes it to another

690
00:27:26,120 --> 00:27:29,040
level.

691
00:27:27,200 --> 00:27:30,720
Uh and I love the thought behind it and

692
00:27:29,040 --> 00:27:32,000
the research. Thank you so much for

693
00:27:30,720 --> 00:27:35,080
coming on.

694
00:27:32,000 --> 00:27:35,080
>> Thank you for having me on.