If you spend much time looking at stocks, you know that every stock has a short abbreviation. You may be familiar with stocks such as KO (Coca Cola) or FB (Facebook). You may know the symbols of the stocks you personally own. You may not know the history behind stock symbols in general, or the symbols of the stocks you own.
In the 19th century, Thomas Edison invented a machine to transmit stock price information across the country: the stock ticker tape machine. Like the telegraph and Morse code, the stock ticker machine used a shorthand to refer to stocks and prices. US Steel, for example, was referred to by the single letter "X". This is the historical and practical definition of a stock symbol.
How Do Companies Choose Their Stock Symbols?
When a company decides to go public in an IPO, it chooses a stock exchange where people will trade its shares (the NYSE or the NASDAQ are two popular choices), and then it chooses its symbol. The symbol is a unique set of three or four characters with some meaning.
A symbol usually has some relationship with the name of the company, like CY for Cypress Semiconductor or XRX for Xerox. Other times, it reinforces a marketing image of the company. For example, the company which owns Pizza Hut, KFC, and Taco Bell changed its name to YUM! Brands and its stock market symbol to YUM in the early 2000s.
To get a short, memorable symbol a company has to be huge. Your uncle Ermine's Canadian corporation filing for its $2 million IPO won't get a one- or two-letter stock symbol. Consider this example. What company uses the stock ticker symbol F? That's the Ford Motor Company: an enormous company with a lengthy history.
Classes of Ticker and Stock Symbols
One stock may have different symbols; a stock class is a differentiation between different ownership models of the same company. For example, the Warren Buffett-led Berkshire-Hathaway has two classes of stocks, BRK.A and BRK.B. The former is many times more expensive than the latter; the company created a second class of stock—the B class—when the share price of the former rose out of reach of the average investor. This strategy allowed more investors to own smaller pieces of the company without splitting every share of the main stock—the class A stock.
Other classification schemes divide all of the stock into multiple groups, each of which has specific rights. Holders of Google preferred stock have the right to vote on corporate actions, where the average Google shareholder has no say. Other preferred stocks may get larger dividends than their common stocks or may be paid out first in case of liquidation, merger, spinoff, or other financial events.
Market Symbols For Non-Stocks
Stock brokers often trade things that aren't stocks. For example, you may hold mutual funds, invest in real estate through REITs, or exchange-traded funds. A popular ETF is the Vanguard S&P 500 index fund called VFINX. You can buy and sell this as through your broker as if it were a stock, even though it represents the value of 500 individual stocks. There are index funds and ETFs for everything from the Dow Jones Industrial Average to gold and silver and oil and other commodities, foreign currency, bonds, emerging market stocks, and more.
Should You Learn Stock Symbols?
Knowing the symbols of the stocks you own or might like to own will help you read investment information and keep track of prices. After almost 150 years of ticker symbols, there's plenty of inertia in how stock markets, brokerages, and investors refer to stocks and trades. Even something as simple as a daily newspaper listing of stock prices uses stock symbols. Your stock broker or brokerage site uses stock symbols.
Furthermore, when discussing stocks with other people or reading analysis online, you'll often see people use symbols as shorthand. You don't have to memorize every symbol on an exchange, but knowing that NYSE:XOM refers to a stock on the New York Stock Exchange referred to as XOM will help you understand what Exxon Mobil is doing in the market.
Here, as usual, value investors have an advantage. You don't have to track down lots of stocks. You don't have to memorize lots of symbols. A good index fund and a couple of individual stocks can make a strong portfolio, and you don't have to trade often.
Understanding the classes of the stocks you own (or, especially, the classes of ETFs and index funds) will make a difference to your investments, but it's more important to spend your research time knowing what makes a business worth investing in than memorizing trivia you can trivially look up.
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