Mad Money

Cramer's investing rule for when company executives unexpectedly resign

Key Points
  • "Mad Money" host Jim Cramer says investors should sell their stock in a company when its CEO, CFO or other executives quit.
  • In these situations, Cramer breaks from his usual method of doing homework.
When executives unexpectedly resign

Unexplained executive resignations are a major red flag for CNBC's Jim Cramer.

"You need to be very cautious when you see unexplained resignations by key executives," the "Mad Money" host told investors. "To put it bluntly, when the chiefs resign, maybe you should go, too."

Breaking from his usual method of homework and careful deliberation, Cramer said investors are better served presuming something is wrong and selling right away when CEOs step down for no clear reason.

"Shoot first. Ask questions later," he said.

The sale doesn't have to be permanent, either. Cramer recalled selling stocks just because their companies' CEOs or CFOs resigned, and if nothing was wrong, he'd simply buy them back.

"But in my whole career, my investing career, you know how many times I can recall that a CEO left for an undisclosed personal reason and his stock was still worth buying right there? Off the top of my head, once: Visa," the "Mad Money" host said. "I've wracked my brain to come up with other examples, I just can't think of any others because that's how uncommon they are."

Cramer's reason behind this strategy was that CEOs and CFOs just don't quit for personal reasons, especially if they want to keep their bonuses.

"These are fabulous jobs," he said. "Competition for these positions is so fierce that when you finally land one, you don't up and leave, not for no real reason."

And while he admitted that there are some exceptions, he argued that for investors, it's not the exception that matters; it's the rule.

"When C-suite executives leave for undisclosed personal reasons, it's almost always because there's something wrong at the company. Hence, my rule: When high-level people quit a company, something's wrong," Cramer said. "When you're looking at individual companies, remember that unexplained high-level executive resignations equals sell."

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