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. In a study published in 2009 by Gary Smith, Alex Head and Julia Wilson of Pomona College in California, a group of people were asked to pick American public companies with “clever” tickers. The resulting list of 82 shares included MOO for United Stockyards, a livestock company, GEEK for Internet America, a service provider, and SPUD for 1 Potato 2, a restaurant chain.
The authors found that a dollar invested in their portfolio of cleverly named ticker symbols in 1984 would have been worth $104 in 2006, an annual return of 23.5%. The return for all shares in the New York Stock Exchange and Nasdaq, the United States’ two largest exchanges, during this period was a mere 12% per year. Traders, the authors argued, are unwittingly drawn to companies with memorable tickers, which increases the demand for their shares and drives up their value. The finding was so striking that Daniel Kahneman, who won a Nobel economics prize for his research into cognitive biases, discussed it in his book, “Thinking, Fast and Slow”.
But might the results of the study simply have been a fluke? A decade on, Mr Smith and two new co-authors, Naomi Baer and Erica Barry, have repeated the analysis with 22 of the original 82 companies that were still trading in 2006. (Only 12 of the 82 firms went bust; most ceased trading for other reasons, such as buyouts, mergers, or delisting.)
Once again, the portfolio containing tickers such as CAKE (for Cheesecake Factory, a dessert chain) and WOOF (for VCA Antech, which offers veterinary services) outperformed. This group of companies earned 13.2% per year between 2006 and 2018, compared with an annual return of 4.9% for the broader market. Mr Smith also reviewed the performance of a second portfolio composed of newer firms with clever tickers such as PZZA (Papa John’s Pizza) and WIFI (Boingo Wireless). This group managed an annual return of 11.3%.
In the original study Mr Smith checked whether the memorable stocks might have come disproportionately from thriving industries, but found no evidence of that. And in both papers the authors found that the abnormal returns were not accounted for by one or two stellar firms, but by several. Of the 22 that survived from the original portfolio, 19 beat the market average between 2006 and 2019. Judging a stock by its name may not be a daft strategy after all.
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