The stock market still loves the idea of a new, magical CEO swooping in to save a struggling company. Last week, both Starbucks and Victoria’s Secret announced that new leadership was being brought in to turn things around. Their stock prices surged 25% and 15%, respectively, on the news. But why? Both companies and their previous CEOs had been underperforming, so the news of incoming leaders with strong track records got investors excited about the potential for a turnaround. The new CEO of Starbucks, Brian Niccol, previously led a successful turnaround at Chipotle; Hillary Super, the new CEO at Victoria’s Secret, had a successful stint as CEO of Rihanna’s lingerie brand, Savage X Fenty. But it's important to remember that a stock surge following a new CEO announcement doesn’t always translate to long-term success. For example, when Ron Johnson, a former Apple executive, was announced as the new CEO of JCPenney in June 2011, the stock initially surged by 8.5% over the month as investors hoped for a revival. However, Johnson’s strategies didn’t pan out, leading to an over 50% drop in the stock price by April 2013, when he was replaced. So, while the buzz around a new CEO can be tempting for investors, it’s smart not to go all in just because of a leadership change.
