|Page: Insider Stock Ownership - Which Exclusive Type of Stock Owners Are Your Fellow Shareholders|
In this article about insider stock ownership I will divide the different shareholder types into the following 3 ownership groups:
You will find a more detailed description of these 3 stock ownership groups below. In the notes at the bottom of this page you will find out how I use this subdivision in the due diligence process of my stock analysis.
In order to find out which sources I use to find out exactly who the current owners of your stock are, I recommend you to read the following article, titled: Company Ownership Search - 5 Free Resources to Find Your Stock's Current Shareholders.
I define the off-the-radar investors as investors who can buy and sell stock with no meaningful restrictions: the private investors. This ownership group is not relevant to me as their individual holdings in a stock are relatively small. It's also impossible to inform yourself about the insider stock holdings of every individual owner of a certain stock.
The on-the-radar investors are obliged to report their insider stock holdings to the relevant authorities. This ownership group consists of institutional owners, mutual funds and investors owing at least 5% of a certain stock. These professional investors can often spend more time and resources on their due diligence compared to a typical private investor. They often base their investment decisions on the opinions of a team of stock analysts and industry experts.
For your reference I will provide you with a thorough description of the different types of on-the-radar investors:
Institutional stock ownership refers to the ownership stake in a listed company that is held by large financial organizations. Examples of institutional owners include banks, insurance companies, asset management firms, hedge funds and corporate pension funds. Institutional stock ownership is usually expressed as a percentage of a company's total shares outstanding.
A mutual fund1 is a professionally managed type of collective investment fund that pools money from many investors to buy stocks, bonds, short-term money market instruments and or other securities. As with institutional ownership, mutual fund stock ownership is also often expressed as a percentage of a company's total shares outstanding.
There are four types of mutual funds: open-end funds, closed-end funds, unit investment trusts and exchange-traded funds (ETFs).
|Open-end funds||Open-end mutual funds must be willing to buy back their shares from their investors at the end of every business day at the net asset value computed that day. Most open-end funds also sell shares to the public every business day; these shares are also priced at net asset value. A professional investment manager oversees the portfolio, buying and selling securities as appropriate. The total investment in the fund will vary based on share purchases, share redemptions and fluctuation in market valuation. There is no legal limit on the number of shares that can be issued.|
|Closed-end funds||Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering (IPO). Their shares are then listed for trading on a stock exchange. Investors who no longer wish to invest in the fund cannot sell their shares back to the fund (as they can with an open-end fund). Instead, they must sell their shares to another investor in the market; the price they receive may be significantly different from net asset value. It may be at a "premium" to net asset value (meaning that it is higher than net asset value) or, more commonly, at a "discount" to net asset value (meaning that it is lower than net asset value). A professional investment manager oversees the portfolio, buying and selling securities as appropriate.|
|Unit investment trusts||Unit investment trusts (UIT) issue shares to the public only once, when they are created. Investors can redeem shares directly with the fund (as with an open-end fund) or they may also be able to sell their shares in the market. Unit investment trusts do not have a professional investment manager. Their portfolio of securities is established at the creation of the UIT and does not change. UIT generally has a limited life span, established at creation.|
A relatively recent innovation, the exchange-traded fund or ETF is often structured as an open-end investment company, though ETFs may also be structured as unit investment trusts, partnerships, investments trust, grantor trusts or bonds (as an exchange-traded note). ETFs combine characteristics of both closed-end funds and open-end funds. Like closed-end funds, ETFs are traded throughout the day on a stock exchange at a price determined by the market. However, as with open-end funds, investors normally receive a price that is close to net asset value. For more information about ETFs and for an answer to the question: What Are the Best ETFs to Invest in, I recommend you to visit the ETF Finder section on UndervaluedEquity.com.
5% stock ownership refers to institutions, mutual funds and individuals who own at least 5% of the total number of outstanding shares from a public listed company.
The most important stock ownership group is, without doubt, the corporate insiders, as they have better insights into the health of the corporation and it is therefore that their trades expose important information.
Insiders can be defined as the company's management, employees and other persons who could potentially misuse confidential information.
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Note: I prefer to see the corporate insiders have a substantial stock ownership in the companies in which I invest, because then their interests are aligned with the off-the-radar shareholders - like myself: we all benefit from a rising share price and we all feel the pain when the share price is declining. With their own money on the line I believe that the company's management is more devoted to accomplish success. Although I prefer to see a substantial insider stock ownership by corporate insiders, I do not want this ownership be too substantial, as their influence is then too big. To find out what I believe is a substantial stock ownership, I refer you to the Insider Ownership Analysis page, which you will find by clicking this link.
Cautionary Note: Unfortunately, finding a stock with a high percentage ownership of corporate insiders and or on-the-radar investors isn't a road map to finding stocks which will automatically increase in price over time. Therefore I recommend you to always do your due diligence as a whole.
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|My Due Diligence||How I Conduct My Stock's Due Diligence Investigation Process. If you want to know what I learned while I was conducting my due diligence, I recommend you to read all the chapters of the investigation process.|
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