by Dr. Mark Skousen, Chairman, Investment U
Monday, October 09, 2006: Issue #591
In the November 1994 elections, the Republicans surprised the country by winning a majority on Capitol Hill. What would this mean for investors? I figured that the Fed was done raising interest rates, and the stock market would rally sharply.
I found a stock that would be an ideal way to profit: Van Kampen Muni Opportunity Trust II had been beaten down, while at the same time was yielding 9% tax-free. The symbol was VOT. So I sent out a special report to my subscribers and told them, “VOTE for VOT.”
In three months, VOT was up 25%. (VOT, by the way, is no longer the Van Kampen Muni Opportunity Trust II Fund; it’s now a Vanguard ETF.)
Ever since then, I’ve had a fondness for catchy, clever ticker symbols. And their track record is surprising
Triple-Digit Returns and A “FUN” Index that Beats the Market
Another favorite of mine is FAX, the symbol for Aberdeen Asia Pacific Income Fund (initially called the First Australia Income Fund). Since its inception in 1986, FAX has delivered an outstanding total return of 484% over a 20-year period, giving us an annualized compounded return of 9.1%. I’m still recommending it.
We also recently recommended GROW, the symbol for U.S. Global Investors. This management firm specializes in mutual funds in natural resources and emerging markets. With these sectors in a major bull market (until recently), GROW has had quite a run, climbing from $6 a share to $24, up nearly 400% in the past year. It has lived up to its clever ticker name.
There are many other examples of successful companies with fun stock symbols:
- LUV (Southwest Airlines)
- HOG (Harley-Davidson) and
- YUM (Yum! Brands)
Last week, I talked to Gary Smith, a professor at Pomona College in California, who created a FUN Index of catchy stock symbols. He asked his finance students to pick their favorite stock symbols among the 33,000 ticker symbols that have been used by past and present companies. They chose 74 companies with symbols like MOO, HOG, and JAIL. Then he tested their performance over a 20-year period. See the results below.
Professor Smith was surprised to learn that the FUN Index beat the Nasdaq/NYSE index portfolio by a substantial margin. Could there be something to investing in stocks based solely on clever symbols?
Two things should be pointed out about Prof. Smith’s methodology:
- His FUN Index is selective, based on his students’ favorite picks. It did not contain the full universe of memorable symbols (for example, it did not include FAX nor GROW).
- I was surprised to discover that over half, 65%, of the stocks in his FUN Index no longer trade, or have merged with another company. For example, GEEK, BEER, and LUCK no longer trade. I’m not sure I’d want to invest in such a wild-west portfolio.
Moreover, there are no guarantees. For every winner like YUM, LUV, GOLD and KEY, you have losers like WIN, DRUG, ASAP and MAD.
There’s no substitute for checking out the fundamentals of a company. But once you have done your due diligence, a unique symbol might be a plus. It could be more than a marketing gimmick if it’s tied to the company’s mission statement. As Prof. Smith told me, “Perhaps a clever ticker symbol is another barometer of talented management – a useful symbol of a clever company.”
Good trading, AEIOU,
P.S. On Friday, we’ll take a look at an even better market-beating strategy: Investing in Fortune’s annual Most Admired Companies list. Stay tuned!
Today’s Investment U Crib Sheet
- Professor Smith’s most recent papers, including his clever-ticker research, can be viewed on his website.
- Shock Stocks Shares of New River Pharmaceuticals, Inc.(Nasdaq: NRPH) jumped 51% in morning trading today. The company, along with Shire Plc (Nasdaq: SHPGY), received tentative clearance to launch its next version of the Adderall series – an attention-deficit-disorder (ADHD) drug. By 10:25 a.m., volume on New River reached 4,385,719 – 4 million more shares than its daily average. It was the highest percentage-gainer of all U.S. stocks.
- 7 Red-Hot Momentum Plays… Reports that North Korea successfully completed an underground nuclear weapons test kept the broad market in negative territory this morning. But the Dow is coming off of a strong week. So, too, are the fast-movers in Oxford Club Investment Director Alex Green’s Momentum Alert. Right now, all but one of his recommendations are trading higher. And a $15.4 billion infusion is about to keep the “momentum” going Here’s why his “next seven stocks will all be winners.”