There are lots of risky and complicated investment vehicles available that can mislead investors with the power of cute-sounding acronyms…

• A psychological phenomenon called “fluency” makes acronyms that sound like familiar words (like “ELKS,” “LYONS,” and “NINJAS”) more appealing than the complicated, clunky investment vehicles they stand for.
• The same phenomenon extends to stock ticker symbols as well, with snappy and pronounceable symbols tending to outperform clunkier symbols in short-term gains.
• Investors should be especially cautious when considering stocks or other investment vehicles represented by acronyms rather than their full names. Is it possible that the name is designed to deflect attention from potential risks?

Facts & Figures

• In an experiment involving ordinary people judging the safety of various fake food additives, easily-pronounceable additives were perceived to be 29% safer than those with hard-to-pronounce names.
• When Harley-Davidson changed its stock ticker symbol from HDI to HOG, the stock price rose by 5%.
• Some choice acronyms and what they stand for: BIMBOs (Buy-In Management Buyouts); STRYPES (Structured Yield Product Exchangeable for Stock); SPARQS (Stock Participation Accreting Redemption Quarterly-Pay Securities); PRIDES (Preferred Redeemable Increased Dividend Equity Securities).