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:

  1. Off-the-radar investors;
  2. On-the-radar investors;
  3. Corporate insiders.

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.

1. Off-the-Radar Investors

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.

2. On-the-Radar Investors

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

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.

Mutual Fund Stock Ownership

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.
Exchange-traded funds 

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.

5% Stock Ownership

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.

3. Corporate Insiders

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.

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.

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.


You may also want to read...

  1. Mining Companies Analysis - Learn How to Invest in Mining Stocks. To execute your own mining companies analysis, I have created a lot of (sub)pages about the relevant terminology and working methods from the mining sector.
  2. Oil and Gas Companies Analysis - How to Invest in Energy Stocks. I created different pages about the relevant terminology and working methods from the energy sector to conduct your own analysis for oil and gas companies.
  3. Understanding the Stock Market - How Do Stocks Work. To help you with understanding the stock market, I have created some articles to explain how stocks work and I also reveal my own stock market analysis in this chapter.
  4. How to Invest in Shares - Learn How to Start Investing in Stocks. In this chapter I inform you how to invest in shares - the UndervaluedEquity.com way. I also reveal which (free) resources I use to execute my due diligence.
  5. How I Invest in Stocks - My Preconditions for Selecting Undervalued Stocks. In this chapter I answer the question: how do I invest in stocks? Thus, I explain which investment rules I follow whilst selecting companies for my stock portfolio.
  6. Stock Investment Analysis - A More Detailed Elaboration on How to Buy Stocks. When a company complies with my preconditions for selecting undervalued stocks, I will elaborate my stock investment analysis to assess the quality of it's assets, management, etc.

Leave a Comment