Apple Jobs Leave: 5 Investor Lessons

Last Updated Jan 18, 2011 12:01 PM EST

When Apple announced that CEO Steve Jobs would be taking a medical leave of absence due to health reasons, it was met with sadness and an understanding that he would have far greater battles ahead of him than the roll out of the iPhone 5. Indeed, the Jobs email to employees was not encouraging - when he took previous leaves, he noted a specific return date, while in this memo, Jobs ended with a less-than-optimistic "I love Apple so much and hope to be back as soon as I can. In the meantime, my family and I would deeply appreciate respect for our privacy. Steve"

While we all root for Jobs, the news reminded me of key lessons that every investor should bear in mind:

1) Avoid individual stocks: Yes, Apple has been a super performer, up a gazillion percent in the second Jobs era and over 60 percent in the past 52 weeks, but assuming that you are a diversified stock investor (you are, right?), chances are you don't have all of your money in Apple. Has your total portfolio beaten its relevant index? If you are anything like 70 percent of active managers, the answer is no.

2) Beware the superstar CEO with no successor: OK, I'll concede that many of you will ignore my number one lesson and pull a Warren Buffett and "buy what you know." Of course, I'm not exactly sure why you think you should buy the stock simply because you really, really like your iPhone, but I know there are plenty of you Apple-lovers out there who have done just that. As ZDNet's Larry Dignan pointed out, the Apple succession plan (or lack thereof) is now front and center. Considering that Jobs really does embody Apple's brand, many shareholders have worried that Tim Cook, who will once again be responsible for all of Apple's day-to-day operations, is not the solution. I'm not so sure. Cook has been in the role previously, but it sure would be nice for the company to acknowledge that Cook's the guy and put the issue to bed.

3) Leadership Matters: This may seem contrary to the CEO superstar advice, but it's just the other side of the coin. While he oversees a huge company, comprised of thousands of talented employees, Jobs has infused the company with his creative imprint. Will the company thrive to the extent that it has with different leadership? The answer remains to be seen.

4) Don't Buy or Sell Without Doing Your Homework: When the Apple news broke yesterday, shares traded down 6 percent in European trading. If you executed a trade on this news, you have violated a rule that should keep you out of panic buying or selling: Don't make a decision without doing your homework. Sure, you might get lucky, but chances are, you may get caught in a downward spiral. Remember those people who rushed in to buy BP during the oil spill, only to see the stock sink further. Conversely, if you own the stock and have good reasons to continue owning it, don't get spooked into selling.

5) Cash is King, ALWAYS: I have never understood the wisdom of being fully invested for two big reasons: (1) I am a wimp and (2) without cash, you may be robbed of future opportunities. Being fully invested means that you may not be able to rebalance when the market moves. For example, if you've been eyeing Apple as an investment, but the stock has eluded you, a pull-back may be a perfect opportunity to jump in. Of course, that assumes that you have the cash available to do so. Similarly, Apple investors may have complained that the company's $51 billion of cash on hand is a waste. Investment wimps (who, moi?) might see the cash as a lovely insurance policy.
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    Jill Schlesinger, CFP®, is the Editor-at-Large for CBS MoneyWatch. She covers the economy, markets, investing or anything else with a dollar sign. Prior to the launch of MoneyWatch in 2009, Jill was the chief investment officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

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