Imagine you walk into a restaurant. The chef owns the place. He eats his own food every single day. Now imagine another restaurant where the chef is just an employee — clocking in, clocking out, and eating lunch somewhere else entirely. Which kitchen do you trust more?
That exact logic applies to investing. When the people running a company own a large chunk of it with their own money, they are playing the same game you are. That changes everything.
This is the core idea behind using insider ownership as an investment strategy. And yet, most investors treat it like a footnote. They glance at it, nod, and move on to the earnings report. That is a mistake.
“The most important quality for an investor is temperament, not intellect.” — Warren Buffett
Let me walk you through five real strategies you can use to find undervalued companies where the people in charge actually have skin in the game.
The Percentage Is Everything — Not the Dollar Amount
Here is something most people get wrong. They see a headline saying a CEO owns $10 million in company stock and think, “great, they are invested.” But if the company is worth $50 billion, that $10 million is a rounding error. The CEO’s personal wealth barely moves with the stock price.
What you want to look at is the percentage of shares outstanding owned by insiders. A meaningful threshold is 15% or more. At that level, the decisions made in the boardroom start to feel like decisions made at the kitchen table. Personal money is on the line.
Also look at the trend. Have insiders been holding their shares through good markets and bad ones? Consistent holding over market cycles is a stronger signal than any earnings call script. If you see steady accumulation over years, that is conviction you can actually measure.
Not All Insiders Are Equal — Know Who Is Buying
Think about it this way. If the janitor at Apple buys $500 worth of stock, it is cute but irrelevant. If the CEO of a small regional bank puts $3 million of personal savings into his own bank’s shares during a market panic, that is a story worth reading carefully.
The insiders who matter most are the operating executives — the people deciding where to spend money, who to hire, and whether to make an acquisition. When their personal net worth moves with the stock, their decisions naturally shift toward long-term thinking.
Board members matter too, but in a different way. A board where the directors own real stakes in the company is far more likely to push back on bad ideas. A compensation committee made up of large shareholders will design pay structures that reward actual results, not quarterly noise.
So when you look at insider ownership, do not just count heads. Ask whose heads they are.
“Risk comes from not knowing what you are doing.” — Warren Buffett
Watch the Timing, Not Just the Transaction
Here is where it gets interesting. The when matters as much as the what.
Insider buying during a market crash is worth far more than insider buying during a bull run. When a CEO writes a personal check to buy more shares at a point where everyone else is selling, that is a real signal. They have access to every piece of internal financial data you do not. They are choosing to buy anyway.
On the flip side, watch for selling patterns that raise questions. Heavy insider selling right after a big acquisition or a fresh capital raise is a red flag worth slowing down for. It does not automatically mean fraud or mismanagement, but it deserves scrutiny.
Build yourself a simple timeline. Plot insider transactions against the stock price over the past five to ten years. You will start to see patterns. The best situations look like this — insiders consistently buy during dips and rarely sell at peaks. That pattern, when you find it, tells you something no press release ever will.
How Insiders Spend Company Money Reveals Everything
Ask yourself a simple question. If you owned 25% of a company with your own money, would you agree to an overpriced acquisition that benefits the investment bankers but destroys shareholder value? Probably not.
That is exactly why high insider ownership companies tend to be more careful with capital allocation. They avoid big, flashy deals just to look ambitious. They are slower to dilute equity with unnecessary stock issuance. When the stock is cheap, they buy it back. When cash is limited, they protect the balance sheet.
Look at the history. Go back ten years and track every major capital decision — acquisitions, share buybacks, dividends, debt levels. Then compare that history against insider ownership levels during those periods. What you often find is a direct connection. High ownership periods correlate with more disciplined spending. It is not magic. It is just incentives working the way they are supposed to.
“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” — Charles Darwin
Use It As a Filter First, Then Do the Real Analysis
Here is my actual recommendation for how to use insider ownership in practice. Do not use it as your final reason to buy. Use it as your first filter to narrow the field.
Start by screening for companies where insiders own at least 10% of shares outstanding. Narrow it further to industries you actually understand. Then, and only then, start your traditional valuation work — earnings quality, balance sheet strength, competitive position, price relative to intrinsic value.
What the insider ownership filter does is quietly remove a lot of bad options from your list. Companies where nobody inside cares about the stock price tend to make careless decisions over time. Filtering them out before you spend twenty hours on a spreadsheet saves you from a lot of heartburn.
The sweetest situations appear when a high-insider-ownership company also trades at a discount to its peers. The market often assumes that discount exists for a good reason. Sometimes it does. But often, the company is simply boring, quiet, and unwilling to play the quarterly earnings game. Patient investors who recognize that gap get paid well for their patience.
A real example worth thinking about: imagine a mid-sized industrial distributor where the CEO, CFO, and three board members together own over 20% of the stock. None of them have sold a single share in fifteen years. The company runs a conservative balance sheet, makes small acquisitions funded entirely from operating cash flow, and buys back its own shares aggressively whenever the market gets nervous. It gives almost no quarterly guidance and gets ignored by Wall Street as a result.
That company trades at a discount to flashier competitors. But over two decades, it compounds earnings and dividends quietly while the well-covered darlings go through boom and bust cycles. Investors who noticed the ownership structure and bought during a market dip made an excellent return, not because the business was spectacular but because the people running it behaved like owners.
“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffett
Build a Simple System to Track It
You do not need a Bloomberg terminal for this. In the U.S., every insider transaction above a certain threshold gets reported on what is called a Form 4, filed with the SEC. These are public documents. You can set up free alerts to notify you when insiders at companies you follow make a significant move.
Keep a separate watchlist — just a simple spreadsheet — of companies with persistently high insider ownership and low insider turnover. Check it every quarter. Watch for large unexpected sales. Watch for clusters of buying by multiple insiders at once. That last one, multiple insiders buying in the same short window, is one of the stronger signals available to any retail investor.
When you combine this tracking system with your valuation work, insider ownership stops being a soft, feel-good factor and becomes a real, repeatable analytical input.
The point of all this is simple. You want to own businesses managed by people who cannot afford to be wrong. When management sits alongside you as a shareholder, the margin of safety goes beyond price. It extends into the daily decisions that shape what the business looks like five years from now.
Buying a company where the people in charge eat their own cooking is not just smart investing. It is the closest thing to a partnership you can get in public markets.
