https://www.wsj.com/articles/when-to-sell-look-at-the-hq-1491768486
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?
In 2002 Bear Stearns moved into 383 Madison Ave., which covered a full New York City block. It was an early warning. A lot of the office space went into mortgage origination, packaging, collateralization and trading. The stock hit $159 in 2007. By March 2008, J.P. Morgan bought Bear Stearns in a fire sale for $2 a share, though the price later rose to $10.
In 1984 the postmodern AT&T “Chippendale” Building opened at 550 Madison Ave. AT&T almost immediately got into a premodern price war with MCI and Sprint over long-distance telephone rates. Eight years later AT&T was out, and Sony moved in. But AT&T isn’t done. It has a pending merger with Time Warner, though its leaders need to be careful: Time Warner Center comes with the deal too.
This shouldn’t be an investor’s only filter. Consider the gilded neo-Gothic Woolworth Building. It was completed in 1912, and F.W. Woolworth’s five-and-dime stores had a nice run until the 1980s. The building is now luxury condos, but your grandpa would have lost a ton if he got out before the world wars. Still, this is the exception that proves the rule.
Think about the New York Times . After almost 100 years on West 43rd Street, a location so iconic that Times Square is named after the paper, management decided to move everyone into a more lavish setting. In 2003 construction started on the Eighth Avenue location, when the stock was around $45. The daily took occupancy in 2007 with its stock about half the old price. It’s now selling for around $14. The HQ Indicator at its finest.
Not coincidentally, the two companies that did the most damage to the New York Times seemed to finesse the trend. Facebook moved in 2011 into the million-square-foot former headquarters of Sun Microsystems in Menlo Park, Calif. It looked so much like a prison it was nicknamed Sun Quentin. Facebook has since built a Frank Gehry-designed annex across the street. It is so low-key that the only remarkable features are the trees on the roof.
Similarly, Google never built a headquarters. In 2003 it took over what would be renamed the Googleplex from Silicon Graphics. The latter company’s stock peaked within nanoseconds of signing a lease for the Mountain View, Calif., campus it never occupied. Meanwhile, the stocks of Google and Facebook keep heading toward the ionosphere.
But wait: Google filed plans in Mountain View for a transparent scalloped canopy over 600,000 square feet of office space. It will include a public “Green Loop” through the first of four domes. “We aim to blur the distinction between our buildings and nature,” the company said at the time. Uh-oh. And then there’s that Apple spaceship down the road in Cupertino.
