Study: Mistaken Identity in Stock Names Costs $1 Million Annually

By:
Chris Gaetano
Published Date:
Aug 13, 2019
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Investors buying the wrong stock because its ticker symbol resembles one from a more well-known company is a phenomenon that a recent study found costs them about $1 million in transaction costs per year, according to CNN. For instance, while there is a company with the symbol FORD, it is not the Ford Motor Company, which goes by F; instead it is Forward Industries, which makes medical devices and other electronics. People similarly confuse Zoom Video, the web conferencing company known by many an office worker, with Zoom Technologies, a thinly traded Chinese wireless company. There are, in fact, many obscure companies that are superficially similar enough to well-known ones that people continue accidentally buying their stock. All of these mistaken trades add up to about $1 million in transaction costs per year. 

The study found that even sophisticated investors can get confused. Mutual funds and hedge funds were found to also make mistaken investments based on similar company names. The researchers believe that these mistaken purchases can be attributed to the increase in algorithmic trading, which tends to just look at what others are doing; if people are making confused trades, the computers could too. 

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