When analyzing a company, we often look at shareholder ownership. Knowing how much of a company is owned by insiders helps us judge the level of support those who know the most about a company are willing to give its stock.

Generally, if insiders own big chunks of the company’s share float—especially if they paid cash for them—we have greater confidence that management believes in the company’s power to deliver for shareholders. On the flip side, it speaks volumes if a company’s management has little or no skin in the game.

Institutions are another important shareholder group, as they tend to have deeper pockets, greater trading volume, and promote what they own. So if institutions own a significant slice of a company’s shares, we take it as a vote of confidence.

The third group, dubbed “public and other,” is largely the retail investor.

So who owns our stocks now?

The Bird’s-Eye View

The new year got our stocks off to a good start. Although the momentum wasn’t fully sustained down the road, the weakness in the resource sector has undoubtedly abated relative to 2013; the TSX and TSX-V Composite Indexes are up 13.7% and 3.6% year to date (YTD) respectively.

Let’s see how the ownership structure has changed for the two major Canadian stock indices since last year.

(Note: the percentages shown in the charts for the TSX and TSX-V do not total 100. A small fraction of the total ownership structure was excluded.)

The bigger picture for the TSX-V has changed little over the last year. As one might expect given the bearish sentiment in our market, institutional ownership remains in a decline, down 1.8%. While not a major leap, it’s good to see that insider ownership has increased by 0.5%. Contrast that with the 0.1% drop in insider ownership for the S&P 500 (down to 2.7% in 2014 from 2.8% in 2013). That may seem tiny given the overall capitalization of the Index, but it speaks of millions worth of capital fleeing for greener pastures.

The change for the TSX is much more pronounced, with institutional ownership up 13.5%, a whopping 45.7% increase from the prior year. Needless to say, this has more than offset the 9.3% fall in public ownership.

Insider ownership has seen its share drop by 35.6% over last year. That large fall, however, reflects a mere 2.6% dip and is relatively modest when compared to the buying frenzy undertaken by institutions.

Divergent Paths

In sum, the TSX has seen increased institutional support, though less insider buying. Conversely, the TSX-V has undergone a contraction in institutional purchases but has grown its share of insider buying. So how do we explain these diverging trends?

First, when we last crunched the numbers in 2013, we found a considerable drop in institutional buying that year, shrinking by 11.8% (down from 41.3%) relative to 2012. This makes the 12.8% rebound now unsurprising, especially considering the TSX’s gradual but steady rise YTD.

In contrast, TSX insider purchases pretty much ended up right back where they left off in 2012—at 4.7%—despite the upswing in 2013. This too could be due to the improving market sentiment this year; as stocks on the TSX rallied, insiders (or at least some of them) started to cut back on their holdings.

The TSX-V, on the other hand, has clearly followed an inverse trend of shrinking institutional support yet steadily growing insider purchases.

Our take is that as institutions scaled back their holdings, insiders tempted by low prices were the first to step in and pick up the slack. Remember that the TSX-V has trailed its older brother, the TSX Index, in terms of YTD growth by 10.1%. On average, that translated into better bargains for savvy investors. Ever since the first time we undertook a similar survey, this behavioral trend has proven to be more consistent than the changing patterns of institutional and insider buying (and selling) on the TSX—an upper-tier market, with larger and supposedly more stable companies.

The Portfolio

On average, insider holdings of International Speculator portfolio stocks are 5.9%, up 0.4% from last year. Likewise, institutional ownership is up from 19.5% to 21.4%. The public (and “other”) controls 60.6% of shares outstanding, down 2.3% from 2013.

In a nutshell, we like that management of a lot of our companies has been increasing its amount of skin in the game and demonstrating commitment to our investments.

It’s worth noting, though, that of 31 companies we analyzed, three stood out as clear outliers, boasting insider holdings two or more times the portfolio average.

Of more interest is the fact that all three companies have long been identified as International Speculator 10-bagger (viz., X and Z) and 5-bagger Y candidates by Louis James. Management increasing their own stakes while the market is down is pretty much as strong a vote of confidence as it gets. This confirms our views regarding the companies’ prospects, and shows management interests aligned with those of their shareholders.

Out of fairness to paying subscribers, I can’t give away the names of these three companies. But you can find out all about them—plus gain access to our 5-bagger and 10-bagger lists—without any risk whatsoever. Take us up on our 100% satisfaction guarantee and try Casey's International Speculator  for 3 months. Love it or get your money back. Even if you cancel, you keep all the newsletter issues and special reports you received. But act quickly: The current breather in the gold market could be the last great buying opportunity before it really takes off. Click here to get started.