Jim Cramer’s guide to investing: Tune in to CEOs

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Executives almost always know their business better than you, listen to them, says Jim Cramer

Mad Money with Jim Cramer

CNBC’s Jim Cramer told investors they should pay close attention to what CEOs say about their companies. If CEOs say something negative, Cramer said its best to take their word for it instead of searching for justifications to keep owning the stock.

Chief executives rarely admit when something is wrong, so when one actually preannounces a shortfall, Cramer suggests waiting at least 30 days before thinking about buying stock.

“Sometimes it can seem like we live in a post-truth world where it’s impossible to know who to believe on any particular issue,” Cramer said. “But even the most skeptical among you should believe executives when they preannounce an earnings shortfall or cut their forecast to well below what the analysts are looking for during their regularly scheduled earnings report.”

At the same time, Cramer said he knows investors need to scrutinize everything CEOs say and take their commentary with a grain of salt. Although most will not flat out lie about their company, they are prone to giving misleading information. When listening to C-suite leaders, Cramer said, it’s also important to note whether that person has a track record of being honest or deceptive.

“Don’t get me wrong, you can’t just take everything that comes out of a CEO’s mouth as gospel,” Cramer said. “There are plenty of executives who’re excessively promotional or who talk like they’ve had rose-colored glasses welded directly to their face.”

Cramer quoted poet Maya Angelou’s famous line: “When someone shows you who they are, believe them the first time.”

“So, in the wake of a shortfall, you have to presume that the stock won’t be bouncing back any time soon — for the next 30 days you should treat the darned thing as a falling knife,” he said. “In short, even if you’re not a huge fan of Maya Angelou’s poetry, you should trust her investment advice!”

VIDEO7:2707:27

When honest execs tell you something is going well, believe them, says Jim Cramer

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