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Investors of the two-legged kind,
whether they're looking at a penny stock or a blue chip behemoth, tend to
take a myriad of details into consideration before investing. And so they
should.
But a recent study suggests that investors of every stripe take mental
short-cuts when it comes to investing...at a time when they should be more
rational.
Wall Street gurus and penny stock investors alike it seems, are more
likely to purchase newly offered stocks that have an easily pronounceable
name, say a pair of Princeton University researchers.
Adam Atler and Danny Oppenheimer found that a stock's performance
immediately after an initial public offering (IPO) appears to be linked to
how easily investors (penny stock or otherwise) can pronounce its name and
stock ticker symbol.
Danny Oppenheimer, commented, "These findings contribute to the
notion that psychology has a great deal to contribute to economic
theory."
The two said the effect also extends to ticker symbols. For example, all
things being equal, a stock with the symbol BAL should outgain a stock
with the symbol BDL in the first days after an IPO.
"We looked at intervals of a day, a week, six months and a year after
IPO," Atler said. "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."
Oppenheimer acknowledged that their findings do not tell the whole story
about the post-IPO success of a stock, not are they good indicators of
long-run performance of a penny stock.
"You shouldn't make changes to your stock portfolio based on our
findings. The primary contribution of this paper is to add a piece to the
jigsaw of understanding how the markets operate," said Oppenheimer.
So, what does this mean for the green and seasoned penny stock investor?
It means you should still take an exhaustive look at any company you're
interested in. It also means that, in the early stages at least, it
doesn't hurt to find a company with a catchy name and ticker symbol to
boot.
By:
John
Whitefoot
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