What’s in a name? A lot – of money, that is, if you’re buying stock, so one must be extra careful with that.
According to recent study conducted by two professors from Rutgers University-Camden, a lot of people mistake one stock for another. While that seems hard to believe, one of the most obvious examples is Ford.
While it would be easily to assume the automaker’s stock symbol is “FORD,” that name actually belongs to Forward Industries which specializes in making carrying cases and is worth less than $10 (£8.3 / €8.9) million.
The funny thing is, a number of people who want to buy Ford stock – which trades under the “F” symbol – accidentally purchase Forward Industries stock instead!
While that’s an amateur’s mistake, it has yielded good results, even if totally by accident. Ford’s stock price has fallen over 46% in the past five years, while Forward Industries stock has only declined 10.66% over the same time period. While neither result is good, mistakenly purchasing Forward Industries stock five years ago would have reduced your loses by nearly 36%.
Of course, that’s just one example and CNN noted it’s a relatively common problem. In particular, people can accidentally buy Apple Hospitality REIT (APLE) stock thinking they are investing in Apple (AAPL). Likewise, Hewlett Packard’s stock is often confused with Helmerich & Payne , who trades under the HP name.
It was initially assumed many of these mistakes were made by individual investors who weren’t familiar with the stock market, but that’s not always the case. With computers and algorithms doing a lot of the trading, Wall Street can also screw up. As assistant professor Vadim Balashov explained “computers scan for stocks and look for ones in play. So if there is [an] unexplained move, the algorithms don’t look for a reason. They just jump on the bandwagon.”
The study found that these mistakes could cost investors more than a $1 million (£829,230 / €895,135) annually in transaction fees. That’s not exactly chump change, but it’s surprising the number isn’t higher, as CNN noted “over 55% of publicly traded firms share some meaningful part of a name or symbol with other companies.”