Belmont University

Another Good Reason Not to Go Public

"I don't want a bunch of snot-nosed, twenty-five year old stock analysts with Harvard MBAs determining the future of our business."

I am not sure that is an exact quote, but that was close to what I said to my partners after we had looked into taking our business public. And my father warned us that we would not like our life in a fish bowl, having our every move and most of our decisions in the public record. Add to that today's cost and hassle of Sarbanes-Oxley and you have quite a list of reasons not to go public with your venture.

But, now here is another reason from Red Herring:

Psychologists from Princeton University said Tuesday they’ve found a strong relationship between the short-term success of an initial public offering and how fluently investors can pronounce the name of a company and its ticker symbol....

So strong was this effect that if an investor started out with $1,000 and invested it in companies with the 10 easiest-to-pronounce tickers on the market--those similar to GOOG (Google)--she would earn $333 more than if she had invested in the 10 hardest-to-pronounce tickers, similar to VYYO (Vyyo Inc).

"This research shows that people take mental shortcuts, even when it comes to their investments, when it would seem that they would want to be most rational," said Danny Oppenheimer, assistant professor of psychology at Princeton University.

Ah, yes. The rational decision making process of the public stock market. Another good reason to stay private!


|

Comments

This study rings so true, as often many investors play the spin-the-wheel, market myopia game. Whatever my mind can comprehend most, must be the right choice. This is very similar to the movie industry where some moviegoers will listen to the so-called critics and avoid those movies that don't catch the eye of the experts. Now mind you, one's differing opinion not matter, because the experts think for everyone. As well, the same can be said for betting on the horse that has the greatest odds. You have a better chance of winning, but you might not win much. Your best bet is to take an educated gamble. That means taking the time to research some of these oddly named stocks.

Tap it in and Comment, Please

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)