Simple names make easy money

Scientists in the US have discovered an apparently straightforward formula for winning on the stock exchange: invest in companies with simple names.

The psychologists found that the easier a new business’ name was to pronounce, the better it did when it was launched on a market.

Investing $1,000 in the 10 companies with the simplest names would earn a punter $333 dollars more over a year than buying into those with the most complicated monikers, the research revealed.

Princeton University’s Adam Alter and Professor Danny Oppenheimer got the idea for the study after finding that undergraduates given a list of fabricated stocks and told to guess which ones would perform best always picked the simpler-sounding - or more “fluent” – ones.

They then took a look at real trading, examining newly offered stocks, known as IPOs (initial public offerings), on the New York Stock Exchange and the American Exchange, and found that their discovery worked there too.

The effect extended to the stock’s abbreviated “ticker code“, so that a company with a symbol like “BAL” should initially outperform one with a symbol such as “BDL“.

The scientists said their research, which is published in the Proceedings of the National Academy of Sciences, added to the evidence that markets were not rationally-functioning entities.

“These findings contribute to the notion that psychology has a great deal to contribute to economic theory,” Prof. Oppenheimer said.

But he stressed that the findings did not tell the whole story about how a stock might perform in the long run, and urged people not to change their investments as a result of his work.

“Despite the implications of these findings, investors as a group tend to correct themselves in the presence of new information about how the markets operate,” Prof. Oppenheimer said.