Sitting here at LAX, I read in this week’s Economist that George Reyes, CFO of Google will retire this week. Immediately, red flags arose everywhere in my brain.
A long time ago, I learned a valuable lesson which I believe to be true. Here it is:
When the CFO leaves a company, sell ALL your stock NOW.
My first encounter with this concept was when the CFO of Yahoo! left in mid-2000. At the time, all of us working there were still giddy (and incredibly naive) about Yahoo!’s prospects and that the stock price and all our fortunes would continue to grow unabated and unstoppable.
Boy were we wrong.
Smarter minds might have said that we could have read the signs, and that we should have been more realistic about the stock market and how high it could climb, and that the word “bubble” and its ability to “burst” should have been something we were watching for. Perhaps we could have crunched that data by ourselves, listened to the experts more carefully, and determined that maybe we should have gotten out before we lost everything…and then some.
In the midst of our giddiness, we saw our CFO leave the company and gave him a big party, wished him well in the creation of his foundation, and hoped that he could just play golf til the rest of his days.
And we all kept right on basking in our giddiness and our virtual fortunes and let it all ride. We let it all ride right down the drain in late 2001 when the market and Yahoo! stock crash landed big time.
That is, all of us except for the CFO who left and kept a huge chunk of the value of Yahoo! stock before it crashed.
Why would the CFO leaving be such a signal that it would be time to get out of a stock or not?
Here is why:
1. A CFO typically has tons of buddies in the financial world and has access to data, analyses, and information that you or I would never get hold of.
2. CFOs come from a career where all they do is think about money, how to make it, and how to keep it. Their analysis of the market is arguably in a much different place than those of us who don’t deal in money all day long. They are NOT going to haphazardly throw away money if they can help it and will bail at the first moment’s notice when they think they’ve topped out in an opportunity.
3. The letter “C” in their title means that have access to company information and analysis far more detailed and confidential than any of us can access. They can see if the company and/or the market is going sour long before you or me.
4. CFOs are master number crunchers. When it comes to money, they can do all this math in their heads far faster than we can with all the calculators and computers at our disposal. For sure, they will be able to calculate when their company and/or the market is going to level out or turn downward a lot faster than we can.
If a company’s prospects are flattening out or going downward, you can bet that the first person to take off and cash in his earnings will be the CFO. Staying on faith is highly doubtful; nothing personal, mate, but money is money and a money guy is not going to bet it on faith.
But if the company’s prospects are good, then why would a guy like the CFO leave?
So I hate making predictions but instead I’d like to offer up a hypothesis, with Google as a participant in this experiment. The hypothesis is, based on what I just posted here, that because the CFO just left from a company that has seen its stock go meteoric since IPO, Google’s prospects and growth have started to or will shortly flatten somewhat. This, in a market such as we live in, will basically trash the stock as the markets hate it when a company goes from super-growth to normal/consistent growth. Trashing the stock is something that CFOs can sense and that is why he is leaving in order to preserve his earnings in Google stock.
I wonder if my hypothesis is right? Let’s wait and see….!
P.S. To all my friends at Google who may be reading this post: I am sorry if I have such a dire outlook, but remember it’s only for Google stock, not the company. So don’t quit but SELL SELL SELL….