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Rule 19: When the Chiefs Retreat, So Should You

One of my favorite rules is that when you see unexplained resignations by execs --
you should presume something is wrong and do some selling.

I have sold stocks simply because the CEO resigned or the CFO resigned,

and if I had to, I would buy them back once convinced that there's nothing wrong.

But in my whole investing career the only time I can recall that a CEO left for an undisclosed personal reason and you would have still made money in the stock was that of Visa.

I have wracked my brain to come up with others and I simply can't think of them.  

That's because CEOs don't quit for personal reasons; they lose their bonuses.

CFOs don't quit for personal reasons, either.

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.

Action Alerts Plus portfolio manager and TheStreet's founder Jim Cramer has learned a lot over his 30+ years of investing. So he created a list of 25 Rules for Investing that can help you avoid the novice pitfalls that even he fell into on occasion.

So start paying attention to the C-Suite.

Rule 19: When the Chiefs Retreat, So Should You

"One of my favorite rules is that when you see unexplained resignations by execs --you should presume something is wrong and do some selling," says Cramer.

Because these jobs are hard to come by so most often, CEOs don't quit for personal reasons.  Remember, if they do, they often lose their bonuses.

"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," he says.

Granted there are occasions when people leave for personal reasons, but watch Rule #19 now as Cramer explains why he still sticks to his rule.

 

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