Signs It's Time to Sell Your Stock

The Motley Fool has an article that goes a little outside the box for advice on when to sell your stock. The research was done on factors outside company performance alone and boils down to two findings. 1) Once a visionary founder steps down that is a clear sign that the stock is headed for trouble (see Gates, Dell, & Bezos). 2) Once a CEO starts buying an estate and fancy cars complacency sets in and the company is headed for trouble.

I think the article is probably right on, but I'm not sure how you make this into an investing strategy. I mean you could dump a stock as soon as a founder or CEO steps down, but it's more difficult to figure out the complacency part of the equation. Take for example Apple, aside from their recent run on iPods, it is really Steve Jobs that people are investing in. He is the conductor that made the company innovate its way out of the funk it was in. You can also look at Google. Larry, Sergi & Eric are willing to take the risks that have made the company just dominant in its field. Both companies will struggle quite a bit when new management takes over eventually.

In the end, investors are buying a stake in the people of a company (unless you are investing in natural resources - mining, petroleum co's where is maybe not so important). If you can find a company with a Jack Welch (Fmr. CEO GE) or John Bucksbaum (Gen. Growth Properties), hold on to it and ride it out. It may not be as sexy as investing in the newest IT thing, but it is a lot more practical - which we at thegoldenparachute.com are big fans of.

Links
Motley Fool - When to Sell Your Stock
Forbes - Best Performing / Worst Performing / Highest Paid CEO's