Insider ownership is almost everything when it comes to stock performance 4


It has been a while my readers. I have been quite busy getting things done for my second wedding with my wife. Yes, you are not mistaken. I am getting married for the second time with the same woman that I was married to 3 years ago.

Yes, we are talking about you!

 

 

We got married in Canada but never properly married in Korea having our parents over. So to be an excellent husband trying extremely hard to please Mrs. BSR, (She is a tough one), we thought this year is the one. It is already hurting our net worth but this is cost of doing business. I mean being happily married. 🙂

Well, you are all busy people and are not obviously here to talk about my second wedding right? So let’s get to work.

 

 

Story 1- Massage Clinic

My back and neck are not in great condition. I have been having muscle pain for a while so I often go for massages. I have been getting massages from small local chains to major national chains many hundred times. There is a very small massage clinic opened up in my neighbor about a year ago. I laugh because it looks like some gong show massage clinic from outside.

It looks like this.

 

About a few weeks ago, I was burned out from work, I wanted to go massage but none of my usual ones seemed to be available. After squeezing out some courage of mine, I called the going show massage clinic. It was available. So I went. The inside looked clean and tidy. 50 something Chinese lady greeted me nicely and did a quick paper work. The lady massaged me for about 60 (+15 minutes) minutes and it was literally the best massage I have ever got. She was very accommodating. Hot-stone massage was the best thing I ever had. Head massage relieved my headache. She worked extra 15 minutes on my arms and hands. That total 60 minutes of massage felt like a second.

 

I have had about 20 massage therapists worked on my body so far and she was the best by big margin. Who would expect that 50 something Chinese lady gives the best massage I have ever had?

 

Why so different? Because she was the owner and she puts her heart into it.

Other 19 other massage therapists that I had were just employees and it was their job. Probably something they would not be very happy to do. Who would like massage strangers’ back for 45 minutes over and over 8 hours a day, 5 times a week? It is a tough job!

 

 

Story 2- My CEOs

As you know, I am an accountant… so I have worked closely with many CEOs from my previous jobs and with the current startup gig. It is quite interesting when it comes to their managing styles and you really need to know this.

 

  • CEO 1– He was the founder but very short term oriented. He kinda understood business. He always looked for an exit and he got kicked out of his own company in a bad way. The stock crashed.
  • CEO 2– He had no insider ownership. 0 stocks but only debentures. When I looked at him, he always looked like a government employee coming to work at 10 am and go home around 4pm. I feel he had 0 alignment with the company and just want his paycheques. The business did not do very well.
  • CEO 3– He had no insider ownership but some debentures. He had another business so he came to work 2-3 times a week and did not understand the business. The business did not do very well.
  • CEO 4– He is the founder and has 20% of insider ownership. He hates dilution so much that whenever I talk about equity financing he gets upset. He thinks himself as the business and the business bears a part of his family name. He constantly strives for improvement and looks for new services and products. No single dull day at work. He works at least 60 hours a week. The business is slowly starting to boom.

See what I am trying to get at? You waited long enough.

 

My point

When you are shopping for stocks that you probably want to hold almost forever (if you are like me who do not have time to follow up with the investments on a daily basis), then having talented, hardworking (and ethical) insiders (CEO and/ or Chairman) and knowing their percentage of ownership are extremely important for securing multiple baggers.

I gotta tell you. I love investing in founders’ business. They often see themselves as the business itself in which they put unimaginable effort over the years building their solid businesses. They are aligned with the company’s long term success. So if you identified companies with insider ownership, then research further to make sure whether the fundamentals are solid.

Because…

 

    Solid Fundamentals

+ Long-term oriented insiders with significant ownership (that dislike dilution)

+ Reasonable price

= 200%-10,000% of return over time

 

Examples

See how the following companies that I currently own (except 1) have been doing.

 

Dollarama

Market cap- $11.5B

116M shares outstanding

Larry Rossy (Founder) owns 7.1M shares

Neil Rossy (Son) owns 1.1M shares

The family collectively owns 7% of business

Last 7 years stock performance-912%

 

 

Stella Jones

Market cap- $2.8B

69M shares outstanding

Founders own 26.6M shares (38% of business)

Last 10 years stock performance-391%

 

 

CGI Group Inc.

267M shares outstanding

Founders own 35M shares (13% of business)

Last 10 years stock performance-579%

 

Linamar

65.3M shares outstanding

Frank Hasenfratz (Founder) owns 15M shares

Linda Hasenfratz (Daughter) owns 4M shares

The family collectively owns 29% of business

Last 10 years stock performance-290%

 

 

Lassonde Industries (My favorite pick)

7M shares outstanding

The founder, Pierre Paul Lassonde owns 3.8M shares (55% of business)

Last 10 years stock performance-434%

 

Meanwhile S&P 500 and TSX index performed 59% and 18% respectively during last 10 years.

 

Let me repeat the magic formula again,

    Solid Fundamentals

+ Long-term oriented insiders with significant ownership (that dislike dilution)

+ Reasonable price

= 200%-10,000% of return over time

 

 

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