An ad appeared in the Saturday Evening Post a month before the stock market crashed in 1929, which precipitated the Great Depression. It read:
History sometimes repeats itself—but not invariably. In 1719 there was practically no way of finding out the facts about the Mississippi venture. How different the position of the investor in 1929!
Today, it is inexcusable to buy a ‘bubble’—inexcusable because unnecessary. For now every investor—whether his capital consists of a few thousands or mounts into the millions—has at his disposal facilities for obtaining the facts. Facts which—as far as is humanly possible—eliminate the hazards of speculation and substitute in their place sound principles of investment.
If the author of this ad were to get a glimpse of 2020 (or 1930 for that matter), he’d realize he was only half right. While facts may eliminate the hazards of speculation, the position of the investor today is the same as it was in 1719. Speculation is, by its very nature, a guess. And when it comes to the stock market, speculation is a guess in hopes of making money—and not about having facts. The game is about profiting, by capitalizing on short term market moves, in which facts are obsolete and play an irrelevant role. Don’t get me wrong, the long term buy-and-hold value investors can still make money in the long run. They’re simply subjected to inexplicable volatility caused by flocks of new-age traders using cell phones.
Stocks don’t reflect an underlying asset anymore. Prices are affected by tweets from quirky CEOs. They skyrocket because of memes instead of financial statements. Hordes of small-time traders flock in unison to buy the dip on bankrupt companies—enough to push up prices.
Given the disconnect between fundamental valuation and stock performance, what can companies do to bump their market cap? One possibility is to pick a good name for the company (or ticker symbol).
Electric car company Nikola (symbol NKLA), an obvious play on Tesla’s name, hasn’t made a single car but has a bigger market cap than Ford Motor Company.
Below is a chart comparing Tesla (symbol TSLA), the world’s most valuable car manufacturer, with Tiziana Life Sciences PLC (symbol TLSA), a company with no revenue and eight employees:
This phenomenon got a fair amount of attention with Zoom Video Communications (symbol ZM) when the world went into lockdown to control the spread of COVID-19. There was a lucky company with a similar name and a fortuitous symbol by the name of Zoom Technologies (symbol ZOOM), which experienced impressive price increase as people placing bets on video conferencing got the name wrong. What didn’t get as much attention was the astonishing number of companies with similar names that experienced the same benefits.
Since the beginning of February of this year: Zoom Video Communications (symbol ZM) is up 225%, Zoom Technologies (symbol ZOOM) is up 400%, Zoompass Holdings Inc (symbol ZPAS) is up 225% and Zoom Telephonics (symbol ZMTP) is up 78%.
We even got an IPO. Zoominfo Technologies (symbol ZI) is up 25% from its debut a month ago.
But the whole market is up!
Well yes, but it turns out that even in a bull market companies with catchy ticker symbols do perform better. In my book WallStreetBets: How Boomers Made the World’s Biggest Casino for Millennials, I noted:
A study made at Pomona College in 2019 compared the performance of stocks with “clever” ticker symbols against the overall market and found that, in all cases, they outperformed the market by significant margins—giving Efficient Market Hypothesis (EMH) evangelists something to think about.
The stock market is no longer an avenue for companies to raise capital intended for growth. By the time companies have their IPO they already secured their Series A – Z funding and are instead looking to pay off their early investors. Since stock prices don’t reflect valuations or growth expectations, companies would do well on Wall Street by focusing on their name instead of their performance.