Gary Smith, a professor at Pomona College in California does very interesting studies on stock markets. One of his creations is a FUN Index of catchy stock symbols, tagged to American stocks. He asked his finance students to pick their favourite stock symbols among the 33,000 ticker symbols that have been used by companies over the years. The students chose 74 with symbols like MOO, HOG, and JAIL. Smith took that selection and tested their performance over a 20-year period. Surprisingly, the FUN Index beat the Nasdaq/NYSE index portfolio by a huge margin. Could clever symbols be used as tools to predict the future performance of stocks?
The main problem with the study is what statisticians call survivorship bias. The FUN Index was selective, based on what the students thought was funny. Several memorable symbols were left out, such as FAX and GROW. Also, some 65% of the stocks in the FUN Index no longer trade (for example, GEEK, BEER, and LUCK), or have merged with another company. This was another way in which the survivorship bias crept in. Besides, for every winner like YUM, GOLD, KEY and LU, you have losers like DRUG, WIN, MAD and ASAP. Surely, you cannot escape the fundamentals of a company. But once you have done your basic research, a unique symbol may offer an edge. Maybe a smart company tends to choose a smart symbol.