When Pomona College Economics Professor Gary Smith began his research in 2005 on "fun and creative" ticker symbols, he thought ticker symbols would be irrelevant to a company's success. "As it turns out," said Dr. Smith, "that's not at all the case."
His study, "Would a Stock by Any Other Ticker Smell as Sweet?" showed that clever and fun tickers symbols might just be a sign that the company will outperform the market.
Many tickers are abbreviations of a company's name, and some companies have come to be known by those abbreviations, such as GE (General Electric), IBM (International Business Machines) and 3M (Minnesota Mining and Manufacturing).
More recently, some companies have chosen clever tickers that not only capture what they do, but also give a glimpse into the company's culture. For instance, Southwest Airlines chose LUV as its ticker in its attempt to brand itself as an airline "built on love." Plus, Southwest is based at Dallas' Love Field, and its original "open-seating" policy reportedly led to romance between strangers who sat next to each other.
Professor Smith's study compared the "clever-ticker" portfolio to a separate portfolio of stocks that traded on the NASDAQ/NYSE. The daily returns for each trading day from the beginning of 1984 to the end of 2005 were tracked for both portfolios by the professor and his research team.
Results of the Study
On average, the stocks with clever tickers outperformed the market by a "substantial and statistically persuasive margin" according to Dr. Smith. In the end, the compounded annual returns were 23.5 percent for the clever-ticker portfolio and just 12.0 percent for the NASDAQ/NYSE portfolio.
According to Dr. Smith, one possible explanation is that the clever tickers are so much more memorable that they remain top of mind and provide a subtle influence to investors when they are buying stocks.
Lessons Learned
Professor Smith suggests that individual investors should always be aware of the role human emotions play on their investment decisions.
Despite how clever some stock tickers might be, there are still a lot of points to consider about a company before investing in it. "Stock prices are not strictly determined by a computer calculation," he said. "There are a lot of other factors that impact how a stock performs."
As for how the clever-ticker portfolio has performed through the recent recession, Dr. Smith has no immediate plans to re-visit the study. Since the initial study monitored the stocks over a period of more than 20 years, there is likely to be some change but not enough to alter the results significantly.