The Surprising Importance of a Stock’s NameBusiness media have picked up on Gary Smith’s research on the importance of stock ticker names, like WOOF or BABY
Last Tuesday morning, Pomona College economics prof Gary N. Smith published a piece here at Mind Matters News on the way in which a clever stock ticker name (like BABY, GEEK, or VINO) can so resonate with investors that, according to his research, the name adds to the value of a stock. This finding resulted from a study, to be released next week. Later the same day, CNBC also reported on Smith’s team’s research:
Sometimes investing is hard, and sometimes it’s as easy as lowering the BOOM on a SALE while hanging out with your PETS on your BDAY. …
Researchers said there were two primary factors at play: Tickers that are easier to memorize help investors remember other important information about the companies and provides more impetus to buy those stocks.
“In an efficient market with rational investors, stock prices should be based on anticipated cash flows and should not depend on something as superficial as ticker symbols. However, human decisions are often based on noisy data and flawed judgments,” Pomona researchers Naomi Baer, Erica Barry and Gary Smith wrote.Jeff Cox, “Study says buying a winning stock is easy: Just find a cool ticker symbol” at CNBC.com (October 1, 2019)
The fabled Economist also chimed in, sniffing that the result was “too farfetched for a sitcom” but didn’t dispute it:
WHEN MONICA GELLER, a character in “Friends”, an American sitcom, became a stay-at-home investor, her strategy was simple. She would only buy shares with stockmarket tickers she liked, including MEG (her initials), CHP (she was fond of chips) and ZXY (which “sounds sexy”). The approach failed. Monica soon frittered away her meagre savings. Yet in the real world it seems to work.“WOOF, CAKE, BOOM: stocks with catchy tickers beat the market” at The Economist (October 7, 2019, paywall)
The Pomona College news release suggests an underlying factor:
A possible explanation to this stock overperformance is that memory involves the acquisition, storage, retention and retrieval of information and the understanding of human memory suggests that clever tickers may heighten investors’ recall of companies, according to Smith and his co-authors.Patricia Vest, “Stocks With Clever Ticker Symbols Outperform Plain Names, New Pomona College Study Confirms” at Pomona College (September 27, 2019)
There’s another way of looking at it, of course: What if the clever name is a signal? Who comes up with and uses clever business names anyway? Imaginative entrepreneurs. They may also be running their businesses with an eye to connecting emotionally with customers as opposed to simply keeping an eye on the stats and following the rules. If so, maybe they also got the customer-focused sales and service part right, long before they got to… CASH, BABY, BOOM.
See also: A BABY, a GEEK, and a COW… … all walk into a bar looking for some BEER and VINO… What happens next? They all beat the market. Were their ticker names a factor? (Gary N. Smith)