STREET DOGS

WHAT’S in a name? Adam Alter, author of Drunk Tank Pink and assistant professor of marketing at New York University’s Stern School of Business, says there is a subtle feature that distinguishes the climbers from the fallers: whether their ticker symbols are pronounceable according to the rules of English.

As Alter explains: “Several years ago, Daniel Oppenheimer and I examined the performance of nearly 1,000 stocks that entered the New York Stock Exchange and American Exchange between 1990 and 2004. We separated stocks with pronounceable ticker symbols from those with unpronounceable symbols. Across both markets, stocks with pronounceable symbols enjoyed a bigger post-IPO (initial public offering) boost than their unpronounceable counterparts…. A trader who invested $1,000 across the companies with pronounceable ticker codes would have emerged $85 wealthier after a day of trading than a trader who put the same thousand dollars in those with unpronounceable codes.

“While these effects are surprising, we also found that companies with simpler names outperformed those with complex names. Other researchers have since found similar results.”

Why would investors, many of whom painstakingly dissect reams of data to understand companies’ finances, base their decisions in part on a stock’s ticker symbol?

The answer, according to Alter, is that reading pronounceable ticker symbols is slightly less mentally taxing. “People generally prefer objects and events that are easier to process,” he says. “More fluent concepts seem more familiar, less risky and more trustworthy — and the same is true of stocks.”

Michel Pireu — e-mail: pireum@streetdogs.co.za