Ben Kumar, Investment Manager, Seven Investment Management
Have a look at this list:
| 1. Apple | 2. Alphabet |
| 3. Microsoft | 4. Amazon |
| 5. Berkshire Hathaway | 6. Johnson & Johnson |
| 7. Facebook | 8. Alibaba Group |
| 9. Tencent | 10. ExxonMobil |
You probably recognise most or all of these names. You could probably even hazard a decent guess that these are the ten largest listed companies in the world right now – give or take a share price move or two. You might also be able to give an approximate take of what each of these companies do – although for Alibaba and Tencent I would accept the answers of “something to do with the internet in China” as a fair effort…
When I first saw this list earlier in the year on Twitter, I was struck by something else as well. In the top four (four given my preoccupation with Spurs getting into European football), three companies begin with the letter A. Looking further down, I then saw another A, a B, an E and F. In fact of the top ten largest companies in the world, only one company has its first letter in the second half of the English alphabet – Tencent1. Ha, I thought, imagine if it was that easy to get a leg up in business; a quick rebrand, and your share price soars! I’d always imagined that company names were randomly distributed.
To follow that train of thought, I took a look at the US equity market of the S&P 500. Of the 500 stocks in the index, 328 have names that begin with letters in the first half of the alphabet – so roughly two thirds. If we take the first quarter of the alphabet, the figure is 42%. 211 of the 500 company names beginning with a letter between A and F!
There has been some academic work already on this front3, although it focusses more on the trading of stocks rather than the absolute size of the companies. Jacobs and Hillert, two professors from the University of Mannheim, found that “a higher alphabetic ranking provides stocks with higher share turnover, [and] investors with lower transaction costs…”
I’m not saying that this is necessarily a free lunch. Clearly just calling a business “AAAA” isn’t going to mean you’re suddenly in charge of the world’s largest company, but it certainly puts another slant on Google’s 2015 transformation into Alphabet. If there is the slightest informational advantage in changing your name, I’d put pretty good money on the brains behind Google finding that out and then capitalising on that.
I wonder what it means for 7IM? Do numbers come before the alphabet or after?!
- I wonder as well whether Tencent’s name also puts it in the first half of a listing in China. It’s the only company listed in a non-English speaking country, but my Mandarin being non-existent, I can’t really check that…
