Between the beginning of October and early November, the following eight companies were among more than twenty that began trading on the New York Stock Exchange: OCI Partners, Springleaf Holdings, Brixmor Property Group, Essent Group, 58.com, Mavenir Systems, Midcoast Energy Partners, and Twitter. They’re a diverse group of tech, energy, property, and finance companies, valued at their respective I.P.O.s between three hundred and sixty million dollars (Mavenir Systems) and $24.5 billion dollars (Twitter).
By the end of their first day of trading, Midcoast, Springleaf, 58.com, and OCI had risen in value, whereas Essent, Brixmor, Mavenir, and Twitter had fallen. At first it’s hard to discern a difference between the early appreciators and the early depreciators. Many experts argue that it’s impossible to reliably forecast stock prices in the short run. In his classic 1973 guide to investing, “A Random Walk Down Wall Street,” the Princeton economist Burton Malkiel famously claimed that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” Investors, Malkiel argued, were at the mercy of the markets, and though prices generally rise in the long run, it’s impossible to beat the market reliably and consistently. Malkiel’s book has sold more than a million copies.
Short-term investing is certainly a gamble, but if you look back at the eight companies, you’ll find one subtle feature that distinguishes the climbers from the fallers: whether their ticker symbols are pronounceable according to the rules of English—that is, whether it’s possible to read them out loud as if they were words, without adding extra sounds. The pronounceable OCIP, MEP, LEAF, and WUBA (OCI, Midcoast, Springleaf, and 58.com, respectively) appreciated by between one percent and fifteen per cent, whereas the unpronounceable ESNT, BRX, MVNR, and TWTR (Essent, Brixmor, Mavenir, and Twitter) depreciated by between half a per cent and fourteen per cent. Eight stocks is a tiny sample by any standard, and stock prices are shaped by far more powerful forces—but the relationship between ticker pronounceability and early performance seems to hold with larger samples, too. (The trend holds if you include all twenty-three stocks that began trading between early October and early November: after twenty-four hours on the market, seventy-five per cent of the companies with pronounceable symbols appreciated, but only forty-seven per cent of those with unpronounceable tickers appreciated.)
Several years ago, Daniel Oppenheimer and I examined the performance of nearly a thousand 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-I.P.O. boost than their unpronounceable counterparts. The effect was strongest during the first few days of trading; over time, it weakened, but never quite vanished. A trader who invested a thousand dollars across the companies with pronounceable ticker codes would have emerged eighty-five dollars wealthier after one day of trading than a trader who put the same thousand dollars in companies with unpronounceable codes. (We also made sure that our results weren’t driven by extraneous factors, like differences between the foreignness, size, or industry type of companies with pronounceable and unpronounceable ticker symbols.) While these effects are surprising, we also found that companies with simpler names (like NOVA Corporation) outperformed those with complex names (Magyar Telekom Távközlési Részvénytársaság). Other researchers have since found similar results.
Why do investors, many of whom painstakingly dissect reams of data to understand companies’ finances, also base their decisions in part on a stock’s ticker symbol? The answer is that reading pronounceable ticker symbols is slightly less mentally taxing; people generally prefer objects and events that are more “cognitively fluent,” or easier to process. The same logic explains why we tend to prefer people with simpler names, and why the aphorism “caution and measure win you treasure” seems truer than “caution and measure win you riches.” In each case, the more fluent concept seems more familiar, less risky, less threatening, and more trustworthy—and the same is true of stocks and, more broadly, of economic decisions. Few investors admit to choosing a stock based on its name; biases like these are powerful precisely because they operate below the surface of conscious awareness.
A similar effect explains why some forms of currency seem more valuable than others. In one experiment, we approached dozens of adults and asked them to estimate what they could buy with one dollar: how many thumbtacks, or pieces of Skittles candies, or sheets of wrapping paper, or paper clips. They wrote their responses on a sheet of paper that included the photocopied image of either a common dollar bill or a relatively rare dollar coin. Like companies with complex names, rarer currency instruments are more “disfluent” because they’re unfamiliar. Those who responded while looking at the dollar bill believed they could buy an average of eighteen per cent more of the items than those who were looking at the dollar coin. We also found a strong relationship between how many times people had seen the dollar coin and how much they believed it could purchase—the more familiar the coin, the more valuable it seemed.
Of course, people perceive bills and coins differently, so we ran other studies that matched the two conditions more carefully. In one, we gave respondents the same valuation task but presented them with an image of one of the following two dollar bills:
It takes most people a moment to see that the bill on top is real and that the bill below it is fabricated. Though there were six differences between the bills, none of the respondents who were shown the fabricated bill realized that it was counterfeit. (Here’s the same task with a real penny and eleven decoys, which shows how weakly the details of even very familiar items imprint themselves in our memories.) Still, those who saw the real bill believed a dollar had more than double the purchasing power than those who saw the fabricated bill. An unfamiliar form of currency—even if you aren’t explicitly aware that it’s unfamiliar—seems less valuable.
What does all this mean in practice? For consumers and investors, it means remaining alert to the possibility that simplicity might be luring you to spend and invest more than you should. For entrepreneurs, all else being equal, a simpler name outperforms a complex name. Cleverness, uniqueness, and novelty are assets in some settings, but in the financial world, they can be liabilities. If you’re trying to choose a ticker symbol for a new venture, there’s nothing wrong with asking a monkey to throw darts at a board filled with possibilities—as long as the board is filled with symbols like WUBA, OCIP, and LEAF rather than BRX, SRLP, and MVNR.
Adam Alter is the author of “Drunk Tank Pink: And Other Unexpected Forces That Shape How We Think, Feel, and Behave,” and an assistant professor of marketing at New York University’s Stern School of Business, with an affiliated appointment in the N.Y.U. psychology department. Some of the ideas in this article are discussed in modified form in “Drunk Tank Pink.”
Photograph by Mary Altaffer/AP.
