Should we factor in company head's health when investing?

August 23, 2019 11:14
Tesla's share price plunged after its founder and CEO Elon Musk admitted to taking pills to sleep. Photo: Reuters

After Tesla’s founder Elon Musk admitted to taking pills to sleep in an interview with the New York Times, the share price of the electric car maker tanked 9 percent in a single day.

This shows how important the health of company leaders is to share price performance. So does that mean we should take it into account when picking stocks?

Well, yes and no.

First of all, there are far too many factors that would impact the share price. Even if the company head suddenly passes away, it may not necessarily be negative.

CEC International Holdings Ltd. (00759.HK), operator of Hong Kong’s popular snack food chain 759 Store, saw its share price surge 90 percent following the death of founding chairman Lam Wai-chun last year, which triggered speculation that CEC could be acquired at a premium.

The case of Apple Inc. is similar. Even after Steve Jobs passed away in 2011, the company continued to grow its sales and revenue substantially, taking the firm’s market value to a much higher level.

Also, defining a health issue is considerably difficult.

American billionaire investor Warren Buffett hardly exercises, he likes hamburger, ice cream, candies and coke, quite the opposite of a standard healthy diet. But he is still sharp and energetic at 88.

If investors use metrics such as a healthy lifestyle to screen shares, they are bound to miss great companies like Buffett’s Berkshire Hathaway or Apple.

Moreover, there are unexpected events that investors simply cannot foresee. For example, HNA co-chairman Wang Jian died from an accident during his trip to France in July last year.

The full article appeared in the Hong Kong Economic Journal on Aug 21

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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Hong Kong Economic Journal columnist