Stocks Where Promoters Are Increasing 'Skin in the Game' 

Dear Viewers

The earnings season is here.

This quarterly ritual is much awaited by long- and short-term investors. As managements come live on the concalls and take questions, it's a rare chance to hear the story from the horse's mouth.

Afterall, of all the stakeholders, it is the insiders who know the most and often the first, about their businesses and its future potential. Be it industry cycles, regulatory developments, order inflow, execution challenges, or any other positive or negative triggers in the business that could influence the business and stock performance, in the short and long term, the insiders know the best.

And yet, a lot of their comments deserve to be taken with a pinch of salt. For it's common for them to undermine challenges. Or to be over optimistic about future. The negatives are often labelled as short-term aberrations. Sometimes the shortlasting benefits are projected as structural trends.

A lot of investors act on such talk, and often end up getting disappointed when execution doesn't follow.

There are a few managements who put their money where their mouth is.

They buy the stock from open market at prevailing prices. And that's where things get interesting.

Nassim Nicholas Taleb, the famous author of Skin in the game has said:

• Do not pay attention to what people say, only to what they do, and how much of their necks they are putting on the line.

If the insiders willing to part with their personal money to buy stocks from open market, especially in bull markets like this, there is good possibility that the business is on an upward trajectory, or the stock is undervalued with healthy upside potential.

While there is a lot of action and talk around what big and smart investors are investing, insider buying has not still got its due attention.

Tracking such insider activities could be a great starting point to narrow down the list of stocks that could be set for strong gains, among thousands of listed shares in the market.

Tracking insider activity also gives interesting insights into the prospects of the industry, well before the industry data is published and market rushes to act on it. If there are multiple insider buying cases in a particular industry segment or sector, there are chances that the whole sector is likely to do well. For instance, in the recent times, insider buying has been seen in the engineering segment, steel stocks and electronics component manufacturers. Considering the capex cycle and pace of infrastructure creation, along with the Make in India push for electronics, these industries are potentially looking at better prospects.

So with this metric, all you have to do is to buy the stock at price similar or lower to promoter's average buy price, sit back, and let them do the hard work, the reward of which both you and insiders will reap.

Investors who followed this approach could have made good money in stocks like Lincoln Pharma, Maharashtra Seamless, High Energy Batteries, Mrs Bectors and so on.

In case this is new for you, here are some stocks that have witnessed insider buying in the recent months and you could add to your watchlist.

Like any other investing approach, this strategy does not have a 100% success ratio. There could be a few cases when you don't get the results you were expecting. As such, following a group approach with mindful allocations is the optimum way to go about it.

Also like everything in investing, there are some exceptions to the rule. You must keep certain things in mind to make good use of this metric.

Sometimes, insiders can indulge in buying and selling trades within a week's span. The key is to filter out such frequent traders and focus on the insiders that have decent skin in the game and that are staying put with their increased stakes. Or better when they keep increasing stakes even at higher stock prices.

Focus on 'Meaningful' Buys: The extent of buying matters- the higher, the better. Some of the insider buying is driven by procedural requirements - for example, to fund ESOPs. Investors should focus only on insider buying that leads to an increase in the stake of owners of the company. Most importantly, never ignore the fundamentals and management quality.

With this, I have come to the end of this video. Press the like button if you found it useful. Let me know your feedback in any case. Hit the subscribe button for more such content. Thank you for watching, Goodbye.