Latest / Workplace Confessions: Behind Closed Doors / Meet Haren Bhakta, the Creator of the Inside Ownership Index

Transcript

Meet Haren Bhakta, the Creator of the Inside Ownership Index · Workplace Confessions: Behind Closed Doors

• 0:02
  SPEAKER_02: Welcome to Workplace Confessions Behind Closed Doors.
• 0:05
  SPEAKER_02: I'm Elsa Barby.
• 0:06
  SPEAKER_02: And I'm Don Andrews.
• 0:08
  SPEAKER_02: We have been friends since sixth grade.
• 0:10
  SPEAKER_02: Somewhere between a car wash job, a few questionable boy choices, and 40 years of friendship, we became the kind of people who always want to know what was really going on, including at work.
• 0:21
  SPEAKER_01: Don spent 25 years as an employment lawyer digging into workplace drama from the inside out.
• 0:27
  SPEAKER_01: I built a long career in the beauty industry as a brand educator with a few TV cameos sprinkled in for fun.
• 0:33
  SPEAKER_02: We came up in very different industries, but we have the same passion, meeting new people and asking how they got their jobs, what they love, what they can't stand, and what happens behind closed doors.
• 0:45
  SPEAKER_01: Every episode, we talk to a new guest about their lived experience in the world of work.
• 0:50
  SPEAKER_01: And because our guests stay anonymous, they can spill the truth without the fallout.
• 0:54
  SPEAKER_02: We get into the choices they made, the tiny cruelties, the surprise kindnesses, and some of the moments that never make it into human resources reports.
• 1:03
  SPEAKER_01: Equal Parts informative and titillating.
• 1:06
  SPEAKER_01: This show serves up all the tea while honoring the incredible, complicated, often messy work people are doing across the industries and across the map.
• 1:14
  SPEAKER_01: Welcome to Workplace Confessions Behind Closed Doors.
• 1:16
  SPEAKER_01: Let's get into it.
• 1:49
  SPEAKER_02: So our first question is always the same.
• 1:51
  SPEAKER_02: What was your very first paying job?
• 1:54
  SPEAKER_00: My first paying job is a very embarrassing one.
• 1:58
  SPEAKER_00: I worked in the gas station.
• 1:59
  SPEAKER_01: I was totally holding right there because that's where I worked and that's where Don worked.
• 2:07
  SPEAKER_00: No kidding.
• 2:08
  SPEAKER_00: Wow.
• 2:09
  SPEAKER_00: What a crazy coincidence.
• 2:10
  SPEAKER_00: Yeah, I was like seven or maybe 18, I can't remember.
• 2:13
  SPEAKER_00: It was a summer job and it was$5 an hour.
• 2:16
  SPEAKER_01: We want to know what do you do now?
• 2:17
  SPEAKER_01: And then what is the journey from those gas station days to what got you to where you're what you're doing now?
• 2:23
  SPEAKER_00: Yeah, I love the stock market.
• 2:25
  SPEAKER_00: So when I was around that age working at the gas station, I had my grandmother had given me a little bit of money to put in the stock market.
• 2:33
  SPEAKER_00: And for the first time in my life, I felt energized.
• 2:36
  SPEAKER_00: I felt motivated.
• 2:37
  SPEAKER_00: I it got me out of bed early.
• 2:40
  SPEAKER_00: I was a night person, like to sleep in.
• 2:44
  SPEAKER_00: But that little bit of money really got me focused and got me out of bed and looking at the market every day and trading stocks.
• 2:53
  SPEAKER_00: And it made me believe I'm smart until the stock market burst in 1999-2000 when the dot com bubble burst.
• 3:03
  SPEAKER_00: Then I lost a majority of that money, but it didn't stop the love I had for the stock market.
• 3:09
  SPEAKER_00: So eventually I got back to it, made a career in the industry.
• 3:14
  SPEAKER_00: In 2024, I created this company, the Inside Ownership Index.
• 3:20
  SPEAKER_00: And for the last two years, I've been trying to grow it.
• 3:23
  SPEAKER_00: Now we have an ETF that tracks the ownership I created.
• 3:27
  SPEAKER_00: The ticker symbol for that ETF is OWN Own.
• 3:32
  SPEAKER_00: Very easy to remember.
• 3:34
  SPEAKER_00: And now my job is really to build brand awareness and get people to know about this index fund.
• 3:40
  SPEAKER_00: There's a wide number of different types of index funds.
• 3:45
  SPEAKER_00: The main three, I should say, is like an equal-weighted strategy where they take the SP 500 and equally invest in each one of the companies within the SP.
• 3:56
  SPEAKER_00: Then you have the regular SP 500, which is market cap weighted, which means that the larger the company is, the more you invest in those companies.
• 4:05
  SPEAKER_00: So it's proportionally weighed to its size.
• 4:07
  SPEAKER_00: If I created one that's based on how much the leaders own.
• 4:12
  SPEAKER_00: So if the CEO and executives of the company own more, we invest more so in those companies.
• 4:20
  SPEAKER_00: And when they own less, we avoid them.
• 4:22
  SPEAKER_00: And the idea is if the leadership owns a lot, they're going to treat shareholders better because they are shareholders.
• 4:30
  SPEAKER_00: And that's the core of what I've built.
• 4:34
  SPEAKER_02: Wow, that is fascinating.
• 4:36
  SPEAKER_02: What made you come up with that idea?
• 4:38
  SPEAKER_00: Yeah, being in the investment industry, I fell in love with Warren Buffett and his philosophy and his teachings.
• 4:44
  SPEAKER_00: And I started attending all his shareholder meetings in Omaha.
• 4:48
  SPEAKER_00: He has one once a year.
• 4:50
  SPEAKER_00: And in 2024 was the first one that his partner wasn't there, Charlie Munger, who had passed away.
• 4:58
  SPEAKER_00: So I bought a lot of Berkshire Hathaway stock because of my belief in them.
• 5:03
  SPEAKER_00: And in 2024, I was sitting there where I actually thought of the idea because I had in the back of my mind, what am I going to do with all my Berkshire stock when Warren Buffett passes away?
• 5:16
  SPEAKER_00: I don't think of the company as highly without him.
• 5:20
  SPEAKER_00: And halfway through the meeting, it occurred to me that the SP 500, the main index fund, will actually buy more Berkshire Hathaway when Warren Buffett dies.
• 5:32
  SPEAKER_00: A lot of people don't know that.
• 5:33
  SPEAKER_00: And it's because of this special calculation the SP does where they don't include Warren Buffett's shares in the calculation.
• 5:42
  SPEAKER_00: And when he dies, those shares will become what's called free-floating, and they'll start counting them.
• 5:48
  SPEAKER_00: So I just thought, okay, why would anyone want more Berkshire without him?
• 5:52
  SPEAKER_00: We should want more Berkshire Hathaway without with him and less so without him.
• 5:56
  SPEAKER_00: And in the same respect, who would want to invest in Tesla without Elon Musk or invest in Meta without Mark Zuckerberg?
• 6:05
  SPEAKER_00: Or the list goes on.
• 6:07
  SPEAKER_00: We want to invest when these key individuals are in the company and probably less so without them.
• 6:16
  SPEAKER_00: And so I came home from Omaha and just got started building this index.
• 6:20
  SPEAKER_00: And I went through 20 years of data to see what it would look like if we invested based on these leaders' ownership.
• 6:29
  SPEAKER_00: I asked people a thought experiment.
• 6:32
  SPEAKER_00: Imagine a very successful company run by very successful leaders.
• 6:36
  SPEAKER_00: Now, overnight, change those leaders to just brand new people.
• 6:42
  SPEAKER_00: Now, is it the same company?
• 6:43
  SPEAKER_00: You might have the same brand, it may have the same corporate headquarters and logo, but is it the same company?
• 6:49
  SPEAKER_00: And most people would say no.
• 6:52
  SPEAKER_00: But the SP would treat that company the same.
• 6:56
  SPEAKER_00: And we don't.
• 6:57
  SPEAKER_00: We use ownership and we think companies with innovative leaders are the ones that you want to invest in.
• 7:06
  SPEAKER_00: And when those leaders are gone, we would want to move on to better run companies, basically.
• 7:15
  SPEAKER_02: Did your research bear out your hypothesis?
• 7:19
  SPEAKER_00: Oh, yes, yes.
• 7:20
  SPEAKER_00: So$10,000 invested in the SP had a good result over 20 years.
• 7:25
  SPEAKER_00: From 2005 to 2025,$10,000 in the SP would be around$75,000 at the end of 2025.
• 7:34
  SPEAKER_00: Using the inside ownership, it would be$110,000.
• 7:39
  SPEAKER_00: So significantly outperformed SP.
• 7:41
  SPEAKER_00: And I went back, I went back formally creating the index 20 years, but I went back informally 100 years.
• 7:50
  SPEAKER_00: And inform by informally, I mean we looked at the top stocks.
• 7:56
  SPEAKER_00: We couldn't go and find the ownership data for all 500, but what we could do is look at the top 10 stocks and see how they rotated and how they eventually lost their value.
• 8:09
  SPEAKER_00: And in almost all cases, once those responsible for the success of an organization leave, the companies begin to decay and erode.
• 8:21
  SPEAKER_00: And I went back all the way to the 1930s.
• 8:24
  SPEAKER_00: The biggest company in the world in 1930s was General Motors.
• 8:29
  SPEAKER_00: And 20 years later, it was still General Motors.
• 8:33
  SPEAKER_00: So it had a competitive advantage for a very long time.
• 8:36
  SPEAKER_00: But it was the whole time was run by one man, Alfred Sloan.
• 8:40
  SPEAKER_00: And once he left, General Motors began its decay.
• 8:44
  SPEAKER_00: And General Motors will probably never be the largest company in the world again.
• 8:48
  SPEAKER_00: And then it happened with IBM in the 80s.
• 8:51
  SPEAKER_00: It happened with General Electric in the year 2000, it was the biggest company in the world.
• 8:56
  SPEAKER_00: The only exception I could find where a company has continued to be great despite the guy who's responsible for that greatness left is Apple.
• 9:05
  SPEAKER_00: Almost every other company goes through a decline once those responsible.
• 9:10
  SPEAKER_00: The most up-to-date current example is Nike.
• 9:14
  SPEAKER_00: Nike is a world-class brand, is down 70% over the last five years.
• 9:20
  SPEAKER_00: And we're not just talking about down 70%.
• 9:22
  SPEAKER_00: We're talking about the greatest bull market in stock market history.
• 9:26
  SPEAKER_00: And a world-class brand, Nike, is down 70% during that timeframe.
• 9:32
  SPEAKER_00: I think speaks volumes.
• 9:34
  SPEAKER_00: And then you have Intel in the 90s with Andy Grove running a CEO.
• 9:41
  SPEAKER_00: $10,000 when Andy Grove started would be several million by the time he retired in 1998.
• 9:47
  SPEAKER_00: 1998, fast forward today, 27 years, Intel stock is exactly where it left off.
• 9:52
  SPEAKER_00: Zero growth.
• 9:53
  SPEAKER_00: And this is what I mean by remove from a company who made it great, and you removed what made it great.
• 10:02
  SPEAKER_02: Yeah, that makes sense.
• 10:04
  SPEAKER_02: This is a really timely topic for us right now.
• 10:10
  SPEAKER_01: So our employer is owned by a private investment firm, and we're for sale, or we're going to go public.
• 10:16
  SPEAKER_01: Is that there's many companies out there in the beauty industry that are starting to be bought up?
• 10:23
  SPEAKER_01: We get we go public and now our leadership is no more.
• 10:28
  SPEAKER_01: So do the does do people invest in people or do they invest in companies and what the vision is of the company?
• 10:34
  SPEAKER_01: I feel like it's a two is a two roads here.
• 10:38
  SPEAKER_00: Yeah, when it comes to for one, VC more so is very people driven.
• 10:43
  SPEAKER_00: So it's very power law driven too.
• 10:45
  SPEAKER_00: So you have VCs that will invest in a hundred different companies, and they maybe even a couple hundred, and they expect maybe two of those couple hundred to really drive all the results of the entire cohort.
• 10:58
  SPEAKER_00: And stocks function the same way, actually, but a little bit less out of that 200 VC companies, 90 of the 90% of them will probably just go to zero or lose a lot of money.
• 11:09
  SPEAKER_00: Versus stocks, maybe half will be flat and or lose money, but all the gains come from a small number, and it's still very much people driven.
• 11:20
  SPEAKER_00: But there are all brands out there that can last without having great people.
• 11:26
  SPEAKER_00: I think Warren Buffett said he wants to invest in a company an idiot can run because eventually an idiot will run it.
• 11:36
  SPEAKER_01: That's great.
• 11:38
  SPEAKER_00: Yeah.
• 11:40
  SPEAKER_01: That's so awesome.
• 11:41
  SPEAKER_01: Yeah, I just I we obviously we have a 401k and we're just talking about investments.
• 11:47
  SPEAKER_01: But the question is like the companies that you named, obviously they have one person at the helm as the leader.
• 11:54
  SPEAKER_01: But then we also have other companies out there like medical.
• 11:57
  SPEAKER_01: You've got Pfizer, you got technology as well, which are well-known companies like NVIDIA or other big companies that are investing in the AI movement, but they don't have a leader that I think most public would know.
• 12:10
  SPEAKER_01: Most companies survive.
• 12:12
  SPEAKER_00: That's interesting that you say that because every month I send out a monthly newsletter, which goes through the top 10 companies in the inside ownership index compared to the top 10 in the S P 500.
• 12:25
  SPEAKER_00: And I name the largest owner of each company because that's who really influences the direction of the company, is that largest owner, right?
• 12:36
  SPEAKER_00: And I simply ask the question every every month: look at the names you recognize relative to the names you don't recognize, and that should tell you which strategy is probably more robust because simple is always more robust than the complicated, right?
• 12:53
  SPEAKER_00: And you could have a company like ExxonMobil, which was a top 10 in the SP 500, just at the last time it was rebalanced.
• 13:01
  SPEAKER_00: And you know, can you name anyone at ExxonMobil?
• 13:04
  SPEAKER_00: Probably not, right?
• 13:06
  SPEAKER_00: Or even Eli Lilly.
• 13:08
  SPEAKER_00: Can you name anyone at Eli Lilly?
• 13:10
  SPEAKER_00: I don't think most people can, but you can look at Dell and Michael Dell is the CEO and founder, Jeff Bezos at Amazon.
• 13:19
  SPEAKER_00: You can name him Warren Buffett at Berkshire, you can name these people.
• 13:23
  SPEAKER_00: And honestly, that probably creates a for one, an index fund that you understand more because you can name the people running those companies.
• 13:32
  SPEAKER_00: And again, simple is better.
• 13:35
  SPEAKER_00: Knowing that the people that are running the company, I think, is enormously important.
• 13:40
  SPEAKER_00: And I think people spent more or too much time focusing on what the company earned last year.
• 13:49
  SPEAKER_00: I'm not saying that's not important, that is important, but I think what people have ignored is or not paid enough attention to is who runs the company and what are their skills and what are they capable of?
• 14:03
  SPEAKER_00: And that's a more important thing to study as it's gonna influence what the stock does or what the investment does more so than looking at what the company earned last year.
• 14:16
  SPEAKER_01: Got it.
• 14:18
  SPEAKER_01: What's the best part about your job?
• 14:20
  SPEAKER_01: Because you are an entrepreneur starting, you have a company.
• 14:22
  SPEAKER_01: So what's the best part about that?
• 14:26
  SPEAKER_00: I could say over the last two years, I I finally created something that is enormously useful for people.
• 14:35
  SPEAKER_00: And I think I created something that's very good for society.
• 14:41
  SPEAKER_00: And when I say good for society, I think the SP 500 has created something good for society in that it gave a low-cost way for many people to invest in the market without having to pay high fees.
• 14:56
  SPEAKER_00: But in the process, it created a huge systemic problem that's occurring because now most of corporate America is now being controlled by shareholders who do not have a voice anymore.
• 15:10
  SPEAKER_00: Because of the rise of index funds, majority of corporate America controlled by three shareholders: Vanguard, BlackRock, and State Street.
• 15:21
  SPEAKER_00: And they don't vote anymore.
• 15:23
  SPEAKER_00: So there's no one vote.
• 15:25
  SPEAKER_00: So if you have a company where there's no owners and it's run by corporate leaders who don't own any stock, there's no longer any mechanism to remove them.
• 15:36
  SPEAKER_00: In the past, shareholders collectively would vote them out if they didn't like them.
• 15:42
  SPEAKER_00: It's becoming close to impossible to do now if shareholders do not like them.
• 15:50
  SPEAKER_00: And eventually, as they take market share, eventually the largest shareholder compared to anyone else combined, will be BlackRock, State Street, and Vanguard.
• 16:02
  SPEAKER_00: When that happens, shareholders will have no voice.
• 16:06
  SPEAKER_00: And I think that's a terrible thing when owners, actual beneficial owners of a company, are not able to decide who should lead it.
• 16:15
  SPEAKER_00: And by the index fund that I created will could solve that problem because we're not going to reward companies where the leaders don't own anything.
• 16:24
  SPEAKER_00: And right now, the SP 500 and these other index funds reward companies more so when there's no owners.
• 16:33
  SPEAKER_00: And I think that's a terrible thing.
• 16:34
  SPEAKER_00: So I believe we we provide the same low-cost index fund option to investors, but are create are solving that skin in the game problem.
• 16:48
  SPEAKER_01: So on the flip side, as an entrepreneur, what is the worst part about your job?
• 16:55
  SPEAKER_00: The worst part about my job.
• 16:57
  SPEAKER_00: What is the worst part about my job?
• 16:59
  SPEAKER_00: I hate the short-term nature of the stock market.
• 17:03
  SPEAKER_00: The stock market is very up and down in the near term.
• 17:07
  SPEAKER_00: Over long periods of time, it creates a value.
• 17:10
  SPEAKER_00: But because of that near-term up and down nature of the stock market, it creates big problems, I think, for most investors in real estate.
• 17:23
  SPEAKER_00: You're not seeing the value of your house every day on a computer screen, and you can't just transact out of your house every day.
• 17:30
  SPEAKER_00: And what it does is create long-term value for those investors because simply because they don't have access to sell it every day.
• 17:38
  SPEAKER_00: If they did, I assure you that people would be losing money on real estate just like they lose money on stocks.
• 17:44
  SPEAKER_00: So I don't like that people get influenced by day-to-day movement of the stock market.
• 17:51
  SPEAKER_00: And what I would like is people to remain long-term focused and be able to invest in the stock market in a long-term nature.
• 17:59
  SPEAKER_00: And I think that that drives me a little bit crazy.
• 18:02
  SPEAKER_00: Because even from my own self, yeah, I understand the long term, and we all get swayed into what's happening in the near term.
• 18:10
  SPEAKER_00: The best buying opportunity was in March and April of 2020, and when the COVID was at the peak.
• 18:18
  SPEAKER_00: And even I was afraid.
• 19:15
  SPEAKER_02: So having spent 18 of my 25 years of legal practice in corporate America, I'm embarrassed to admit how many of those years I worked before I learned how companies make money and what CEOs care about.
• 19:30
  SPEAKER_02: And I remember taking a class at work called How We Make Money or something like that.
• 19:34
  SPEAKER_02: And we talked about the fact that CEOs are motivated by short-term shareholder gains.
• 19:40
  SPEAKER_02: And I talk a lot about this.
• 19:42
  SPEAKER_02: Yeah.
• 19:43
  SPEAKER_02: I remember it was like mind blown.
• 19:45
  SPEAKER_02: And also, I don't want to be here anymore.
• 19:49
  SPEAKER_02: Once I realized that we weren't in it for the long haul, and all of these long-term initiatives that I had spent so much time and energy and attention on could just be thrown away if the market didn't want it anymore.
• 20:04
  SPEAKER_02: It's so demotivating.
• 20:06
  SPEAKER_02: And one great example is DEI.
• 20:09
  SPEAKER_02: I headed the function of diversity, equity, and inclusion at the company I worked for several years when the social justice movement was happening and the market was all over that.
• 20:19
  SPEAKER_02: And you had to have a chief diversity officer, and you had that better be an African-American person.
• 20:24
  SPEAKER_02: And there was so much energy behind the work we were doing.
• 20:27
  SPEAKER_02: We got so much done in a short period of time.
• 20:29
  SPEAKER_02: And then the market shifted, and boom, it's just gone.
• 20:33
  SPEAKER_02: And so much of that is politically driven, and that's not really what I'm talking about.
• 20:36
  SPEAKER_02: But just I love what you're doing with this company because I feel like you're trying to remind us that companies are people, they're not just, you know, exactly.
• 20:48
  SPEAKER_00: Yeah, they're people, in animal objects.
• 20:51
  SPEAKER_00: Yes.
• 20:52
  SPEAKER_00: And that's another important thing where to be successful for a company, Jeff Bezos said that you have to do things that look unconventional or do not make sense to most people.
• 21:06
  SPEAKER_00: And in order to do that, you have to have skin in the game.
• 21:10
  SPEAKER_00: You have to have an owner because it's too hard to do things that do not make sense to most people through committee.
• 21:20
  SPEAKER_00: You can't have a group of boardroom people collectively sit down and decide what's best to do, because the best thing to do generally does not fit the consensus view.
• 21:33
  SPEAKER_00: It takes a bold owner to go out and make things happen, which is why we see the largest companies in the world today.
• 21:40
  SPEAKER_00: They were founded and run by leaders who are still alive today, for the most part.
• 21:46
  SPEAKER_00: All the competitive advantages large companies have, and yet, if you look at the biggest companies in the world, they were founded very recently.
• 21:54
  SPEAKER_00: And pretty soon OpenAI and Anthropic, when they go public, the average age of the largest companies.
• 22:00
  SPEAKER_00: In the world is coming down.
• 22:01
  SPEAKER_00: So once the owners of a company leave, you get judged quarterly.
• 22:09
  SPEAKER_00: And I think you mentioned that short-term thinking.
• 22:12
  SPEAKER_00: It's almost not their fault, though.
• 22:13
  SPEAKER_00: If you hire somebody to run the company and they don't own any shares, and you reward them based on quarterly bonuses, they're going to start thinking quarterly, right?
• 22:25
  SPEAKER_00: And Jeff Bezos, for example, never thought in quarters.
• 22:29
  SPEAKER_00: He thought in decades.
• 22:30
  SPEAKER_00: And to create significant value, you have to think in decades, and you have to do things that make your company look less good now.
• 22:40
  SPEAKER_00: Right?
• 22:41
  SPEAKER_00: To create real value, you're going to do things that make your company look less profitable because you're investing in things that are not going to pan out for several years.
• 22:54
  SPEAKER_00: The problem is a structure.
• 22:55
  SPEAKER_00: So we can almost can't blame the short-term thinking of most executives because that's what they're incentivized to do.
• 23:02
  SPEAKER_00: They're incentivized to think in short term.
• 23:04
  SPEAKER_00: And they're rewarded to think in short term.
• 23:06
  SPEAKER_02: What are the drawbacks of having one sort of central leader at the helm for decades?
• 23:17
  SPEAKER_00: I don't think we should have one central leader for decades if the comp if the leader's not good.
• 23:22
  SPEAKER_00: So what we want to avoid is entrenchment.
• 23:24
  SPEAKER_00: And so that's one of the things I talked about is like how we correct the entrenchment problem where if a CEO is controlled, owns no shares themselves, and shareholders are don't have a voice anymore, then they kind of get locked in.
• 23:37
  SPEAKER_00: What we want is a very focused CEO.
• 23:42
  SPEAKER_00: I went back and looked at the best performing stocks, and there's a term called 100 bagger.
• 23:51
  SPEAKER_00: 100 bagger means a stock that went up a hundred times your initial investment.
• 23:56
  SPEAKER_00: So you can invest$10,000 and it turns into over a million.
• 24:00
  SPEAKER_00: And between the years 2000 and 2025, there's around 21 of them that achieved that return where$10,000 turned into a million.
• 24:10
  SPEAKER_00: And I looked to see what they all had in common before they went on the hundred-bagger run.
• 24:18
  SPEAKER_00: And they were all across the boards in terms of industry, size.
• 24:24
  SPEAKER_00: I could only find one commonality.
• 24:28
  SPEAKER_00: They all had ownership at the board level of at least 5%.
• 24:33
  SPEAKER_00: And it goes back to what Jeff Bezos says.
• 24:36
  SPEAKER_00: There's actually two exceptions.
• 24:37
  SPEAKER_00: Two of the companies didn't have that ownership.
• 24:39
  SPEAKER_00: Those two were Apple and Fico Isaac.
• 24:42
  SPEAKER_00: Surprisingly, Steve Jobs didn't own a lot of Apple.
• 24:46
  SPEAKER_00: He left Apple, he got kicked out, and he came back.
• 24:49
  SPEAKER_00: So he didn't have that large ownership share that you would expect a founder to have.
• 24:54
  SPEAKER_00: But anyway, 19 of the 21 all had significant ownership.
• 24:58
  SPEAKER_00: So this is like NVIDIA, Amazon, Google, O'Reilly's Auto Parts, Tractor Supply.
• 25:05
  SPEAKER_00: So all the ownership, it wasn't necessarily founder run.
• 25:09
  SPEAKER_00: It wasn't necessarily the CEO who had the ownership.
• 25:13
  SPEAKER_00: But somebody within the organization had ownership.
• 25:17
  SPEAKER_00: And they're the ones that set the strategy and long-term thinking of the organization.
• 25:23
  SPEAKER_00: And in order to have huge returns, huge outlier returns, that ownership is almost necessary.
• 25:32
  SPEAKER_00: And history shows that, where there needs to be that long-term thinking component to really get these huge, massive returns because you have to do things that don't make sense.
• 25:43
  SPEAKER_01: What is a myth that people might believe that you would like to spell now as to what do people think about when people say, oh, you I play the stock market?
• 25:54
  SPEAKER_00: I started out in managing money for individuals, high net worth individuals at Merrill Lynch, then spent two years there, then went to Morgan Stanley, spent another five and a half years there managing money for high net worth individuals, managing their individual retirement accounts.
• 26:12
  SPEAKER_00: And in 2017, I broke away from Morgan Stanley, started my own firm again, managing money for high net worth individuals.
• 26:20
  SPEAKER_00: I got into what's called microcap investing.
• 26:23
  SPEAKER_00: So I started a fund that invests in tiny companies, tiny publicly traded companies.
• 26:28
  SPEAKER_00: I got involved and joined the board of a tiny microcap company and eventually bought it out and sold it.
• 26:36
  SPEAKER_00: One myth, I think, one myth is that I think touching on what I said earlier, really, is too many people look to last year's earnings or a PE ratio to decide what a good investment is.
• 26:57
  SPEAKER_00: And the stock market doesn't work that way.
• 26:59
  SPEAKER_00: You can't look at a PE ratio to tell you whether a company is a good investment or not.
• 27:05
  SPEAKER_00: And the best example I have to explain that is in 2020, Nvidia and Intel were essentially the exact same company.
• 27:16
  SPEAKER_00: They were both identical,$250 billion companies designing chips, computer chips.
• 27:23
  SPEAKER_00: And at that moment, in July of 2020, Intel had seven times the revenue and seven times the profits of Nvidia.
• 27:33
  SPEAKER_00: It had a higher return on equity and a high and it had a higher free cash flow yield, meaning it earned more cash for every dollar invested.
• 27:43
  SPEAKER_00: Fast forward six years from July of 2020, Intel has underperformed the market.
• 27:49
  SPEAKER_00: Nvidia is up more than 2,000%, creating enormous wealth for shareholders.
• 27:54
  SPEAKER_00: And NVIDIA had something Intel didn't.
• 27:57
  SPEAKER_00: It had a CEO that owned a significant stake that went to bed thinking about the company, woke up thinking about it.
• 28:04
  SPEAKER_00: We have paid too little attention to who the leader is and how much they own.
• 28:10
  SPEAKER_00: And I think that is one thing that a lot of investors have missed.
• 28:15
  SPEAKER_00: And that's the myth that last year's earnings are our PE ratios are very important and they're not.
• 28:22
  SPEAKER_00: And that's not how the market works.
• 28:25
  SPEAKER_01: I before we do the question, I just have a question.
• 28:28
  SPEAKER_01: Why do you think in the past maybe 10 years did people learn more about stocks because of the leaders were more visible?
• 28:37
  SPEAKER_01: Versus before 10 years, we knew about stock, we knew about companies, but there was no visible leader that is on TV, is being followed and chased by the paparazzi.
• 28:48
  SPEAKER_01: Like, why do you think the shift in leadership and why the visibility of leaders now?
• 28:52
  SPEAKER_00: Yeah, which is what I don't necessarily agree with that.
• 28:54
  SPEAKER_00: The the the for example, Walmart, in a very successful company, it was started by Sam Walton, who started with one store in Arkansas and grew it to I think thousands of locations.
• 29:07
  SPEAKER_00: Warren Buffett with Berkshire Hathaway, he started that in 1965.
• 29:12
  SPEAKER_00: Most companies did have a leader at the helm, but I believe maybe what we're getting at now is the fact that the most dominant companies are run by our technology-based, and technology-based companies require a visionary leader versus in the past, you could have Exxon Mobil or a ATT, which had physical copper wire going from house to house, didn't require an innovator to run ATT, right?
• 29:49
  SPEAKER_00: Today, I think Peter Peter Thiel said that the past economic advantage was based on atoms.
• 29:57
  SPEAKER_00: So physical economies of scale, actual manufacturing with ATT, like I mentioned, the copper, physical, copper wire.
• 30:06
  SPEAKER_00: Today, financial modes or competitive advantages are built on electrons.
• 30:10
  SPEAKER_00: They're digital, they're infinitely scalable, but it requires the company to constantly innovate and keep up with everyone else.
• 30:17
  SPEAKER_00: So they're constantly on the treadmill, having to invest money and keep up with what other people are doing.
• 30:23
  SPEAKER_00: And that requires that visionary, versus maybe in the past, it was less reliant on that visionary.
• 30:31
  SPEAKER_00: But like ATT, for example, the cell phone came outside of the ATT industry.
• 30:38
  SPEAKER_00: So when you have that huge competitive advantage and you it's run by bureaucratic organizations, the disruption that takes place generally comes out comes from outside of that system.
• 30:51
  SPEAKER_00: So like the cell phone was invented by Motorola outside of ATT.
• 30:56
  SPEAKER_00: The internet also came from outside of ATT, right?
• 31:00
  SPEAKER_00: So all these disruptions that happen come with outside of the industry.
• 31:05
  SPEAKER_00: So it's incredibly important to have those visionaries more so now because of the nature of these moats are very electron-based, they're digital, required, they're more fragile.
• 31:19
  SPEAKER_00: You could have ATT be dominant for 20 years because of that physical copper wire.
• 31:24
  SPEAKER_00: Today, Google and Meta and Apple, they're more the ecosystem driven, right?
• 31:31
  SPEAKER_00: We buy the iPhone simply because we're part of that Apple ecosystem.
• 31:36
  SPEAKER_00: We're not buying it because the actual phone or the parts, the wires are superior, right?
• 31:43
  SPEAKER_00: We're buying it because of that ecosystem.
• 31:45
  SPEAKER_00: So it requires them to innovate more and therefore it requires that visionary more so than before.
• 31:52
  SPEAKER_00: I think for these disruptive type companies, it does require that that charismatic leader who could really recruit the best talent, be in front of the public, and get people to rally around them and create these amazing products, right?
• 32:12
  SPEAKER_00: I think Napoleon said 10 people who yell make more noise than 10,000 who keep silent.
• 32:22
  SPEAKER_00: And basically, the idea is it's better to have an army of sheep led by a lion than an army of lions led by a sheep.
• 32:31
  SPEAKER_00: It's these few key individuals that really are able to rally people around them and create something enormously special.
• 32:38
  SPEAKER_00: That's always been the case, but now, more so, the best companies and most innovative, or I should say the best companies in the world are innovative companies, versus in the past, they could have been companies run by a commodity like oil, like ExxonMobil, or something like that.
• 32:55
  SPEAKER_00: But now today it's these electron type companies that that matter.
• 33:01
  SPEAKER_01: Now for the juicy part, what is the wildest, weirdest, or most unforgettable thing that you've ever witnessed at work?
• 33:09
  SPEAKER_00: The most wildest, craziest.
• 33:11
  SPEAKER_00: I'll say two different things.
• 33:12
  SPEAKER_00: For one, it came out recently that this hedge fund called Situational Awareness, run by this AI guy, had a huge margin call.
• 33:22
  SPEAKER_00: Huge margin call where I think like 24 billion.
• 33:26
  SPEAKER_00: The size of the margin call was 24 billion.
• 33:28
  SPEAKER_00: They got all the way up to 40 billion dollars, and they had to liquidate like 80% of their portfolio or something due to a margin call.
• 33:36
  SPEAKER_00: Yet it came out that they're still up like 12% for the year.
• 33:40
  SPEAKER_00: So I don't know if you saw that.
• 33:42
  SPEAKER_00: So this guy like bought huge amounts of micron and sand disk, and they were up like 400%, and he got a huge margin call and somehow still came out ahead.
• 33:53
  SPEAKER_00: So I find that pretty crazy.
• 33:55
  SPEAKER_00: But the craziest thing that happened to me was when I was working for Morgan Stanley in the beginning.
• 34:01
  SPEAKER_00: When you're a trainee in the beginning, you handle people who walk in and you get those.
• 34:07
  SPEAKER_00: And for the most of the time, people who walk in with an appointment are not the type of clients that that you you would want.
• 34:14
  SPEAKER_00: Anyway, I think one time a homeless guy walked in and he came in and he said, Hey, I want to buy American Airlines.
• 34:22
  SPEAKER_00: American Airlines was in bankruptcy at the time, and he came in and he's like, Yeah, I want to buy American Airlines.
• 34:30
  SPEAKER_00: And I said, Okay, you want to open an account and do you have money?
• 34:33
  SPEAKER_00: And again, he was homeless, and he's like, No, I only deal in gold bouillon.
• 34:37
  SPEAKER_00: Anyway, long story short, that meeting ended, but American Airlines somehow stock, I think it was like 20 cents, it ended up coming out of bankruptcy, went up to$20.
• 34:47
  SPEAKER_00: That homeless guy knew something.
• 34:50
  SPEAKER_01: Awesome.
• 34:51
  SPEAKER_01: So one of the last questions is let's just say somebody has an extra 10,000 lying around and they want to enter into the stock market.
• 34:59
  SPEAKER_01: What advice can you give them?
• 35:01
  SPEAKER_00: They should buy index funds.
• 35:03
  SPEAKER_00: And index funds are really for the people who for one, you're going to outperform 90% of individuals who know about stocks because most people don't do better than the index funds.
• 35:15
  SPEAKER_00: And I would form a world view.
• 35:18
  SPEAKER_00: There's three different types of index funds that I've mentioned: equal weighting, which puts the same amount of money into every stock in the SP 500.
• 35:28
  SPEAKER_00: Then you have SP 500 market cap weighted, which is the main one.
• 35:32
  SPEAKER_00: The bigger the company, the more you put in.
• 35:35
  SPEAKER_00: And then you have mine, which is the inside ownership weighted, the more the leaders own.
• 35:39
  SPEAKER_00: So you have to have a world view.
• 35:42
  SPEAKER_00: If you view there's going to be a thousand great companies and they're all gonna chug along, then the equal weighted is probably better.
• 35:51
  SPEAKER_00: If you believe that it's impossible to know which ones are gonna do well, but there are gonna be a few number of really great performing companies, then the SP 500 may be better.
• 36:04
  SPEAKER_00: If you feel like there's gonna be a few visionaries who do enormously well and create enormous wealth, and like I mentioned, if you believe that it's better to have an army of sheep led by a lion, then an inside ownership weighted will probably do better.
• 36:23
  SPEAKER_00: Form a worldview and buy index funds.
• 36:26
  SPEAKER_01: What keeps you going through all the lows?
• 36:31
  SPEAKER_00: I truly believe I built something special.
• 36:33
  SPEAKER_00: No one had thought of an index fund that that uses ownership and focuses on the leaders.
• 36:39
  SPEAKER_00: So I truly believe I built something special.
• 36:41
  SPEAKER_00: So, regardless of the ups and downs of the market, I think I I created something that's gonna outlive me.
• 36:48
  SPEAKER_00: People a hundred years from now are gonna want a way to invest in the stock market based on leaders.
• 36:55
  SPEAKER_00: And I created that and truly excited about it.
• 36:59
  SPEAKER_00: The ups and downs of the market don't really phase me as much as it used to.
• 37:05
  SPEAKER_00: It's still gonna phase you.
• 37:06
  SPEAKER_00: We're human, so we're gonna be phased by ups and downs, but it's far less than it ever used to be.
• 37:12
  SPEAKER_01: Thank you so much today for joining us for our longtime listeners.
• 37:16
  SPEAKER_01: This was a nice, I don't think we have any editing today.
• 37:19
  SPEAKER_01: This is amazing.
• 37:20
  SPEAKER_01: Thank you so much for all the information that you provided to our listeners.
• 37:24
  SPEAKER_01: And with that, we want to thank you for sharing your story with us.
• 37:27
  SPEAKER_01: You've officially joined the ranks of the brave and the bold.
• 37:32
  SPEAKER_01: That's it for this week's confession.
• 37:34
  SPEAKER_02: We've laughed, cringed, and maybe questioned our own career choices.
• 37:39
  SPEAKER_01: Big thanks to our anonymous guests for keeping it real and reminding us that behind every job title is a story worth telling.
• 37:45
  SPEAKER_01: If you've got a workplace confession of your own, we're all ears.
• 37:49
  SPEAKER_01: Hit us up at our email address.
• 37:51
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• 37:54
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• 37:56
  SPEAKER_02: Until next time, keep your badge clicked, your coffee strong, and your stories wild.
• 38:01
  SPEAKER_02: This is Workplace Confessions Behind Closed Doors.