Don't Fill Up on CARBS or MINTS
Catchy acronyms help sell investments, but there’s a danger of indigestion.
Wall Street loves acronyms more than anyone except the folks who work in the Pentagon.
In 2001, Goldman Sachs recommended that investors focus on what it called the BRIC nations — Brazil, Russia, India and China. The European debt crisis brought us their counterparts — the worrisome PIIGS: Portugal, Ireland, Italy, Greece and Spain.
Now, in a report titled “CARBS Make You Strong,” Citigroup says Canada, Australia, Russia, Brazil and South Africa should be lumped together because their markets and currencies are equally sensitive to changes in commodity prices.
Before you decide to invest in the stocks of those nations, you might want to consider MINTS (Malaysia, Indonesia, New Zealand, Thailand and Singapore), CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa), MIST (Mexico, Indonesia, South Korea and Turkey) or CASSH (Canada, Australia, Singapore, Switzerland and Hong Kong). Proponents of all these groupings say they belong together because of various market similarities.
There is some legitimacy to the thinking here, but not the way you’d hope. A 2006 study by the research firm MarketPsych Data found that stocks with tickers that form common words — such as LUV, BID and RIG — outperformed others by an average 8.5 percentage points on their first day of trading from 1990 through 2004. That’s because people like catchy names that are easy to remember when dealing with complicated matters — such as investing. But the outperformance wasn’t sustained, and investors were worse off in the long run.
Acronyms may be catchy, but they don’t justify any investment decision.