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Insider ownership is usually a very good sign for investors because if an insider is invested in the company, it shows that it is dedicated and committed to creating shareholder value. A company whose insiders have marginal ownership or do not even own any shares might be a signal that the company will not be managed in the best way. If insiders are invested in the company, it also shows that they believe in the business model and the company’s competitiveness. Additionally, insiders have more information and insights into an industry and a company, so if they own shares, it is usually a very good sign for investors.
Another factor that needs to be considered to put things into perspective is the salary of each insider that owns shares in the company. An insider with a high salary that owns a few shares of the company, whose value is a small percentage of his salary, might not be a very good signal.
High insider ownership is usually a good sign because insiders are confident in the company and are incentivized to do their job as best as possible. They are also more likely to have their goals and objectives aligned with shareholders, and companies with high insider ownership tend to create more shareholder value over the long term. Afterall, insiders who own shares have skin in the game, which is undoubtedly positive.
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