Rising above the San Francisco skyline, a few short blocks from where Mel Brooks filmed the Hitchcock “Vertigo” spoof “High Anxiety,” is the 1.6-million-square-foot Salesforce Tower, soon to be the company’s new headquarters and the second-tallest building west of the Mississippi. As the stock market reaches dizzying heights, my thoughts turn to the toughest decision for investors: when to sell a stock.
Wall Street’s most successful players get ahead of the news, understand a CEO’s mind, and figure out where the company is going. To do this, I often use what I call the “HQ Indicator.” It’s for those playing long ball, not day traders, but it is simple. When a company announces it is moving its executives into a lavish palace, it’s often time to get out.
Consider the Frank Gehry-designed IAC Building in Manhattan, completed in 2007. It’s the deconstructivist-style headquarters for InterActiveCorp , owners of CollegeHumor and Tinder. I find it ugly. And IAC stock deconstructed itself, going from around $40 in 2007 to under $15 two years later, though it has since rebounded.
Or the $1.7 billion Time Warner Center overlooking New York’s Central Park. Opened in October 2003, it’s a “city within a building.” Time Warner’s stock was $45 at the time, hit $68 in January 2007 and then dropped to $17 two years later. It didn’t get above $45 again until 2012.
Why does the HQ Indicator work? Investors in public companies have no control and are at the whims of management. Are a company’s leaders frugal, or do they spend shareholders’ money like drunken sailors? Are they modest or do they have the hubris that leads to an edifice in honor of the CEO’s greatness and legacy? Will management be tempted to rush to fill the huge swaths of new empty headquarters space, often taking on questionable businesses?