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.
In fact, choosing stocks with cute tickers like those has proven to be a profitable strategy over the previous 12 years, more so than haggling over profit-and-loss statements, studying price to earnings ratios or listening to boring CEO calls.
A study from Pomona College recently verifies research done a decade earlier that found clever ticker symbols that either can be voiced as normal words or have a clear association with the product perform exceedingly well on their own.
The study, focusing on returns from 2006-18, found that a basket of clever symbols posted a compound annual return of 13.22% from 2006-18, while the broader market, as gauged by the CRSP Total Market Index of nearly 4,000 stocks, returned just 4.9% annually during the same period.
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.
“If a ticker is easy to pronounce or clever, it is likely that the symbol invokes a sense of creativity and positivity when an investor reads or hears about it,” the researchers said. “This positive feeling — albeit completely unrelated to the success or relevant financial characteristics of the company — may then be implicitly associated with the stock when the investor recalls details about it.”
The analysis follows work done in a 2009 paper that tested the same theory from 1984-2005 and found similar results.
Studies since then have shown that stocks with easier-to-read ticker symbols have greater liquidity and trading volume, though the results of the broader research haven’t been reproduced. The Pomona research also found that the outperformance of the clever-ticker stocks wasn’t due to a few stars that carried the day, as 19 of the 22 companies in the basket did better than the broader market.