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Old 06-02-2006, 09:15 PM   #1
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Default IPO pitfall

Something to think about before choosing a new stock ticker name:

http://www.livescience.com/humanbiol...ck_ticker.html

Quote:

The ABCs of IPOs: Easy-to-Pronounce Stocks Do Best

By Robert Roy Britt
LiveScience Managing Editor
posted: 30 May 2006
02:50 pm ET


There are myriad strategies for making a company's first day of stock trading a good one.

Add a pronounceable ticker symbol to the list.

A new study of initial public offerings (IPOs) found that stocks with ticker symbols you can actually say, such as ELY or MUF, did vastly better on opening day than jumbles like SRX and GMD.

The finding does not speak too well for the rationality of markets or investors.
"This research shows that people take mental shortcuts, even when it comes to their investments, when it would seem that they would want to be most rational," said Danny Oppenheimer, an assistant professor of psychology at Princeton University. "These findings contribute to the notion that psychology has a great deal to contribute to economic theory."

How a few real-word stocks did on their fist day of trading:

Pronounceable ticker codes

PER (Perot Systems Corp) +172%
ECI (Excel Communication Incorporated) +90%
MUF (Manufactured Home Communities) +75%
ENT (Equant NV) +62%
ELY (Callaway Golf Co.) +62%

Unpronounceable ticker codes

KNL (Knoll Incorporated) -99.8%
GTS (Global Telesystems Group) -97%
SRX (SRA International Incorporated) -87%
MRX (Medicis Pharmaceutical Group) -50%
GMD (Grupo Mexicano de Desarrollo) -42%

The effect wears off over time, however.

"We looked at intervals of a day, a week, six months and a year after IPO," said Princeton graduate student Adam Alter. "The effect was strongest shortly after IPO. For example, if you started with $1,000 and invested it in companies with the 10 most fluent names, you would earn $333 more than you would have had you invested in the 10 with the least fluent."

The research, funded by the National Science Foundation, involved stocks on the New York Stock Exchange and the American Stock Exchange. Atler and Oppenheimer detailed their findings yesterday in the Proceedings of the National Academy of Sciences.

No big surprise
The finding is in keeping with other psychological studies that reveal people use mental shortcuts to evaluate complex information. In general, people judge easy-to-process stimuli as more convincing, familiar and famous, the scientists say.
The research took into account company size. "We thought it was possible that larger companies might both adopt more fluent names and attract greater investment than smaller companies," Atler said. "But the effect held regardless of company size."

The research began in a laboratory setting. Students were asked to judge the prospects of fictitious companies, and Atler and Oppenheimer realized that pronounceability was a major factor in yielding positive outlooks.

They caution against using the finding as a sound investment strategy.
"You shouldn't make changes to your stock portfolio based on our findings," Oppenheimer said. "The primary contribution of this paper is to add a piece to the jigsaw of understanding how markets operate."
So, if Segway, Inc. makes an IPO "in the next few years", what would be a good ticker symbol that isn't already taken?

SEG (first half of Segway, "SEG" not taken yet, but there are several 4 letter symbols starting with "SEG")
ROL (short for roll, already taken by "Rollins, Inc.")
GLI (short for glides, not taken yet(?))
ROF (rolls on floor, as in ROFLMAO)
MAD (mobility assistance device, already taken by "Madeco S.A. (ADR)")
ESN (short for electric sneakers, not taken yet(?))
BAL (not taken yet(?))

Some symbols are 2, 4, or 5 letters

IROL
IGLI
IBAL
SEGC (short for Segway Corp.)
SC (already taken by "Shell Transport & Trading")
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Old 06-03-2006, 01:32 AM   #2
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Definitely "SEG" if that's available, and Segway wanted to go public.

Chris
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Old 06-03-2006, 05:58 AM   #3
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Easier than that....SGWY. Four letter symbol, transliteration is easy.

Steven
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Old 06-03-2006, 08:52 AM   #4
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Quote:
Originally Posted by Desert_Seg
Easier than that....SGWY. Four letter symbol, transliteration is easy.

Steven
That looks good, and it doesn't seem to be taken yet. But is it more prestigeous to have less letters on one's ticker symbol?
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Old 06-03-2006, 01:00 PM   #5
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Quote:
Originally Posted by bystander
That looks good, and it doesn't seem to be taken yet. But is it more prestigeous to have less letters on one's ticker symbol?
I don't know about prestigious. Personally, when I invest I don't look at how long, short or prestigious the ticker symbol is, I look at the basic such as P&L!

The key in a ticker symbol, or so I believe, is what you stated earlier....getting one that is both recognizable and rolls of the tongue!

Steven
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