Rule No. 19: When the Chiefs Retreat, So Should You
Editor's note: Jim Cramer's new book, Real Money: Sane Investing in an Insane World, is available in selected bookstores now. As a special bonus to RealMoney readers, we will be running Cramer's "Twenty-Five Rules of Investing." For more about the new book and to order it, click here. Today, we present Cramer's nineteenth rule of investing. Read more about his rules:
Pigs Get Slaughtered
It's OK to Pay the Taxes
Don't Buy All at Once
Buy Damaged Stocks
Diversify to Control Risk
Do Your Homework
Defend Some Stocks
Don't Bet on Bad Stocks
Don't Own Too Many Names
Cash Is for Winners
No Woulda, Shoulda, Couldas
Don't Subsidize Losers
Check Hope at the Door
Lots of guys had lots of reasons to sell Enron. I only needed one of them: The CEO quit for personal reasons.
CEOs don't quit for personal reasons. CFOs don't quit for personal reasons. These are fabulous jobs. You get them after giving up much of what people enjoy about life, such as family, friends and nights out. Competition is so fierce for these positions that when you finally land one, you don't up and leave. You leave because something's wrong at the company. Hence, my rule:
When high-level people quit a company, something is wrong."Aha!" you say, "I know a CEO who quit because he had an epiphany about climbing K2." Or, "I know a CFO who left because she wanted to spend more time with her family." Fine. There are exceptions. This is a game about the rule, not the exception. There will always be some situation in which it is a mistake to sell when a high-level person leaves. I don't care. As you can tell, if you have read the rules to date, I am giving you the stuff that has kept me in the game all these years, that literally has kept me from losing more money than I have made. Right now, AIG (AIG) feels like Enron to me. We have no idea what kind of reserves AIG really has at all, and the high-level departures are unnerving. This one seems like Fannie Mae (FNM) at best, Enron at worst. This is why on some sleepy August night with Enron at $47 a share, I told everyone and anyone that I would sell it nine ways to Sunday because Jeffrey Skilling, the man who would have given his eye teeth to get his CEO job, suddenly quit. Of course, there were those who said, "Cramer, if you had done more homework, you could have gotten out at $90." Yeah, maybe. I didn't. I didn't keep you in till zero, though, either.
|1.||Pigs Get Slaughtered||2.||It's OK to Pay the Taxes|
|3.||Don't Buy All at Once||4.||Buy Damaged Stocks|
|5.||Diversify to Control Risk||6.||Do Your Homework|
|7.||Don't Panic||8.||Buy Best-of-Breed|
|9.||Defend Some Stocks||10.||Don't Bet on Bad Stocks|
|11.||Own Fewer Names||12.||Cash Is for Winners|
|13.||No Regrets||14.||Expect Corrections|
|15.||Know Bonds||16.||Don't Subsidize Losers|
|17.||No Room for Hope||18.||Be Flexible|
|19.||Quit When Execs Do|
|Check back for more of Cramer's Rules|
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