A portfolio containing tickers such as CAKE (for Cheesecake Factory) and WOOF (for VCA Antech, which offers veterinary services) outperformed
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 , CHP and ZXY . The approach failed. Monica soon frittered away her meagre savings. Yet in the real world it seems to work.
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.
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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