To paraphrase the 17th-century philosopher Thomas Hobbes, the tenure of a corporate executive can be "nasty, brutish and short." Indeed, many CEOs and chief financial officers last just a few years on the job before the board decides that fresh blood is needed.
Most of the time, such a transition appears to be orderly, but when an abrupt change is made, you should almost always move quickly to sell shares. There's a very good chance that you'll be able to buy back shares at a much better price down the road, for reasons I'll explain in a moment.
Scandal In The Grocery Aisle
After a series of stumbles, including a botched deal to buy Pringles potato crisps and allegations of price-fixing of in the walnut market, several executives at Diamond Foods (Nasdaq: DMND) were abruptly terminated in February 2012. Shares suddenly collapsed by two-thirds from prices seen just a few months earlier, leading some investors to start to bottom-feed this stock in search of value.
Such buying turned out to be premature, as Diamond Foods' problems only deepened from there, and the company repeatedly missed filing deadlines with the Securities and Exchange Commission (SEC).
Yet even though attempting to catch a falling knife like this is unwise, it's still worthwhile to track a broken company's next moves. It took nearly a year for Diamond Foods' new management team to fix the mess, but by early this year, it was increasingly clear that the crisis was passing and improving quarterly results lay ahead. In the past six months, this stock has posted an impressive 60% rebound.
Polycom And RadioShack: Tied At The Hip
Earlier this week, executives at Polycom (Nasdaq: PLCM) and RadioShack (NYSE: RSH) left their companies for very different reasons -- but investors should steer clear anyway.
Today, at 11:20 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for July 11th, 2014 | John Ransom
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