Skin in the Game

Eat your own cooking

The perfect analogy for how company executives and money managers should act. (guess who said it, hint: his nickname is the Omaha Oracle). Wouldn’t it be off-putting to go to a restaurant, and eat the food that the Chef himself refuses to eat? Why would we do the same with investing? If the management team of a company refuse to invest in their own company, why should we?

 

It’s crucial that management have shares/ stakes in the very companies they manage, as it will align their incentives alongside those of the investors. How do we determine if management have shares in their company?

Market Index

The above website has a feature, in which you can find a company and observe the director transactions, as well as view the list of majority shareholders of that company.  

In a hypothetical world, director selling is bad, and directors buying more stock is good. Of course in the real wold individuals/directors may have very good reasons for buying and selling shares of their company; however usually if a director/founder is selling shares, they will release information to the public as to why. If they do not, this is generally a bad sign.

NBSInvesting