»5 Minute Wrap Up by Equitymaster

On This Day - 2 NOVEMBER 2018
Insiders Are Buying 40% of Our Recommended Companies. What About You?

Kunal Thanvi, Research analyst

The Indian Share Markets are going through one of the most volatile environments in recent times.

With black shadows in the NBFC space along with the fallout of IL&FS, the recent rift between the Reserve Bank of India and the government is creating the next phase of un-certainty.

Both domestic and foreign investors have turned cautious.

However, we've been telling subscribers, perhaps this is the best time to invest for the long-term. We strongly believe this is the best time to invest in high quality companies in a staggered manner.

And we are seeing this approach followed by our super investors and promoters running their own business.

As Smart Money Secrets subscribers know, there are three indicators that helps us find where the smart money is flowing in the markets.

And these three indicators are:

  1. Super investors holding more than 1% in the company.
  2. Super investors buying through bulk or block deals.
  3. Insider buying i.e. promoters buying their own stock.

Of the three, the strongest indicator is promoters buying their own stock.

We always try to find owner-operators to recommend in Smart Money Secrets.

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I have always believed, coming from a business family, that owners running their own business have perfectly aligned incentives. Since their livelihood is dependent on the business they run, they are very proactive and dynamic in running their business.

An 'owner-operated' company is one led by the promoter(s) or founder who owns the majority stake in the company and runs the business too.

I believe the owner-operator is truly incentivised to think long-term and has the capacity to suffer in the short-term by avoiding fads and staying focused on sustainability.

Look at examples like Eicher Motors, Symphony, and Ambika Cotton. These companies were present in either highly competitive or commoditised markets but these owner operators created niches for themselves.

One of the most important pillars of my Smart Money Secrets stock recommendation service is to find companies that are run by owner operators with their skin in the game.

We believe apart from a strong business it is important to have strong management with incentives perfectly aligned.

Now with the correction in the market, we are seeing majority of the promoters putting their money into their own stock.

This means...

  1. They have high confidence on their own business in times to come.
  2. By betting their own money, they are increasing their skin in the game further aligning the incentives.
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Out of the seventeen stocks we've recommended in Smart Money Secrets, we see seven companies where owner-operators have increased their stakes between March and September 2018. See today's Chart of the Day for more.

We believe, this is one of the strongest smart money indicators and it could be best time to buy into or increase stake in these companies.

Chart of the Day

Talking about owner-operators and the stocks we've recommended in Smart Money Secrets - Sarvajeet and I pulled some interesting data.

As per the BSE fillings, seven out of the seventeen companies have seen their promoters buying their own stock. And as per the insider buying disclosures, these promoters are still buying from the open market.

Here's the chart showing the increase in the promoter's stake over March and September 2018.

Insider Buying: These Owner Operators Are Taking Advantage of the Correction

We believe insider buying is one of the strongest smart money indicators. And as we can see in the chart, owners are increasing their stakes in many of our recommended stocks.

Regards,

Kunal Thanvi
Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

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