The Best Investors in the World are Entrepreneurs

What we talked about.

Sunny Ray talks with Haren Bhakta, founder of the Inside Ownership Index, about why founder-led, owner-operated companies tend to outperform. Bhakta explains his index tracks businesses whose leadership holds meaningful equity stakes, arguing that owners innovate more aggressively while managing capital more conservatively than hired executives. Drawing on two decades at Morgan Stanley, Prudential, and Merrill Lynch, he describes how frequent trading erodes returns, citing a TD Ameritrade study showing dormant accounts belonging to deceased owners outperformed actively managed ones. The idea for his fund crystallized at a Berkshire Hathaway annual meeting in 2024, when he realized the S&P's free float methodology means index funds buy more of a company once its founder dies. He walks through historical examples, including General Motors, IBM, and General Electric, where companies declined sharply after visionary leaders departed, contrasting them with Apple's rare resilience after Steve Jobs. Bhakta also details manually compiling twenty years of proxy filings to build his proprietary ownership dataset, and how Nassim Taleb's Skin in the Game shaped his conviction that leaders with real capital at risk make the unconventional bets that create outsized, power law driven returns.

Founder of the Inside Ownership Index explains why founder-led companies with real skin in the game beat the market over time.

The questions, and the answers.

What are you building, and why should the world care?

I built the Inside Ownership Index, a passively managed fund of companies whose leaders own significant stakes in what they run. When leaders have real skin in the game they innovate more aggressively yet manage capital more conservatively. On balance a basket of insider owned companies outperforms, because those leaders think about the business constantly and make decisions others simply cannot.

You wrote that the more seriously people take investing, the worse they may be at it. Where did you learn that?

Investing is like a bar of soap, the more you touch it the smaller it gets. TD Ameritrade found that the best performing brokerage accounts belonged to owners who had died, because nobody traded them and compounding just worked. A century of US stock data also showed only four percent of stocks created all the wealth, so the less you trade, the better you generally do.

What did two decades at Morgan Stanley, Prudential, and Merrill Lynch teach you about how portfolios really get built?

It confirmed that the more people trade, the worse they do, and it taught me how to actually communicate with clients. I wanted to be an analyst, but 2008 pushed me into sales instead, which turned out to be the best thing that happened to me. Now I can be analytical and still explain to investors why insider ownership solves a real problem in how portfolios are built.

What was the moment the free float problem stopped being an academic quibble and became something you had to fix?

I thought of the index sitting at the Berkshire annual meeting in 2024, worried what would happen to my Berkshire shares once Warren Buffett passed away. It hit me that the S&P actually buys more Berkshire when he dies, since the index is free float adjusted and excludes his shares. I realized we should want more exposure to Buffett, Musk, Bezos, and Zuckerberg while they are still running things, not after.

What are your thoughts on Tim Cook and Apple?

Apple is the one real exception. Usually when the person responsible for a company's success leaves, the company declines, like Nike after Phil Knight retired and fell seventy percent, or IBM after Thomas Watson Junior, or General Electric after Jack Welch. Steve Jobs left and Apple stayed great under Tim Cook, which almost never happens across a century of corporate history I studied.

What about Google, since the founders are still involved?

Google is actually the biggest position in my index because Sergey Brin and Larry Page are still major owners and still showing up. Once AI became the big race, Brin got re-energized and started going into the office again to work on it. I would trust founders making massive capital allocation calls in AI over companies without one, like Apple, which barely invests in AI infrastructure.

You collected twenty years of proxy filings yourself. What would it have cost to buy that data instead?

It simply did not exist properly aggregated anywhere, not on CapIQ, Bloomberg, or FactSet. Even what existed was wrong, like missing shares Reed Hastings held in a trust at Netflix. So I manually went through around twenty thousand proxy filings for every S&P 500 constituent over twenty years myself. Right now I am the only one with this ownership dataset, which is what the index is built on.

What did Taleb's Skin in the Game get right that finance never really operationalized?

He argues academia and the real world are the same in theory but different in practice, and people who live in textbooks usually get it wrong. Academia got the power law nature of stocks half right, assuming you cannot know the future winners so you index everything. What I found is leaders are even more power law driven, so indexing to owner operators captures outsized returns that stock picking alone misses.