What’s in a Ticker?

What does a ticker symbol have to say about your stock? Turns out Ticker symbols are more like domain names than people thought; everyone wants the popular ones. A new study that was published in the Journal of Financial Markets has found evidence that the like-ability of a ticker symbol adds value to the stock price. The study looked at the like-ability and pronounce-ability of 1,959 stock ticker symbols that were rated by undergrads. Simply, they found that the liability and pronounce-ability have a positive relation to Tobin’s Q. If you haven’t heard of Tobin’s Q before it’s another tool that we have to value a stock with. The Q Ratio is simply Total Market Value of the Firm divided by Total Asset Value. From 0 to 1 is considered a low Q, and above 1 is considered a higher Q.

Why all this fuss over a ticker symbol? The ticker is important because it identifies shares of a company that trade on the public equity market. These tickers are usually between 1 and 4 letters long and usually, but not always, represent the company in some way. Symbols can be reused to! The single letter tickers are envied by many companies because they are simple and easy to remember. There are also only 26 of them, and when it comes to scarcity, you get the picture. Loews won their trading symbol L, switched from LTR, and will be joining the exclusive list of other companies that have a single letter ticker symbol.  Visa won the coveted V ticker in 2008 when it went public that year.

Symbols are not the only way to identify a stock. A CUSIP will tell you almost anything you need to know about a security, and is different for everyone. CUSIP stands for Committee on Uniform Security Identification Procedures and was founded in 1964. Options and futures contracts are the only financial instruments that don’t get a CUSIP number. The point is that if you have the CUSIP, you can use Yahoo Finance and type in the CUSIP there to get all the information you want about your security.

Some are calling for private companies to get ticker symbols as well, which would be complicated because using only four letters means that you have enough symbols for 456,976 companies. Considering there are about six million companies in the United States, you might spot the problem here. You could do it with a 7-digit number for everyone company out there, but not with a four letter ticker symbol.

Ticker symbols are pretty much the biggest brand Wall Street has. Everyone has seen pictures of videos of ticker tape, but few people understand where they actually come from. Thomas Edison is actually credited with the invention of the ticker tape machine, which is what gave the letter symbol the name “ticker”. It was a lot of work to print each individual company name on the ticker tape, and so these company names were shortened with abbreviations. Back in the day they used to be simple abbreviations, but now there are complex rules about creating your ticker symbol, and many companies are using the ticker symbol for advertising now. What we know of today as the Stock Symbol was actually created by Standard and Poor’s and then approved by the SEC, NASD, and the exchanges. Those that are traded on these exchanges have three letters or less, and those that are traded Over-the-Counter can have four.

Once the SEC has cleared a ticker symbol, it usually must be approved by the exchange. A symbol can be rejected for closely resembling another ticker symbol, or by being an expletive. Another fun tip; if there is an E in the fifth letter of your ticker symbol that’s trading on the NASDAQ, you know that the company has previously had trouble with their SEC filings. Good to know before you dive into those penny stocks!

Traveling through Nevada this summer I noticed that the company that produced the metal shipping containers that are used by trucking companies had their ticker symbol printed on the top right corner of the container for all other drivers to see. This is a fun and interesting way to get the ticker symbol in people’s heads. For a while, Sun Microsystems traded under the symbol JAVA which is one of the primary coding languages. Harley Davidon went under HOG, 3M went under MMM, and Ebay simply went under EBAY.

In another study conducted by Pomona College in Claremont California, researchers found that clever stock tickers performed better than the rest of the market. This flies in the face of the efficient market hypothesis which says that all relevant information is reflected in the stock price. Here is a graphical representation of their performance compared to the market.

capture

*Source

It looks like there is a little magic to what the ticker symbol of a company is.  The question remains whether this is a marketing gimmick and investors are just responding to memorable ticker symbols, or if having a memorable ticker symbol reflects management’s forward thinking and marketing ability which should transfer into their products, then their bottom line, and eventually your brokerage account. More research is being done, but this is just one more example of how investors may not always be well informed, another hole in the efficient market process.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s