Shortly after Google announced its deal to acquire thermostat-maker Nest Labs for $3.2 billion, shares of NEST started trading like gangbusters. Unfortunately, NEST is not the stock symbol for Nest Labs.
NEST actually represents the stock of Nestor Inc, an essentially bankrupt company that has seen almost no stock activity since selling off its assets in 2009. No one is quite sure why the stock is even still available to trade, but confused investors (or perhaps some unscrupulous ones) rushed to buy it up, mistakenly believing they were getting in on Google's Next Big Thing. Nestor's stock price went up 1900 percent for the day, and reached a high of 10 cents after years of trading for less than a penny a share. Economics blogger Kid Dynamite noticed the stark increase in trading, and posted this graph on his site. Notice the volatile rise after a long period of quiet.
A similar stock confusion happened a few months ago when Twitter released its S-1 filing and announced it would go public. Misguided investors saw the news and immediately purchased TWTRQ stocks, the symbol of the defunct company Tweeter Home Entertainment. Oops.
Stock market mistaken identity is a problem that has stretched back years. In 2007, a recall for products made by Graco Children’s Products Inc. was mistakenly listed alongside a link for the publicly traded Graco Inc. (GGG), though the two had nothing in common except for the name.
That type of confusion isn't always so harmless, though, and can have real and lasting impacts on companies. A Harvard Business School dissertation, excerpted in the Journal of Finance, examined the related movement of two companies with similar ticker names in the 1990s and found that news for one impacted the other's business with statistically significant values. Merger talks for MCI Communications (MCIC), a tech firm trading on the Nasdaq, had a real impact on the stock price of Massmutual Corporate Investors (MCI), a NYSE closed-end fund, although neither was remotely related. Like with Nestor and Tweeter, news for a similarly-named company boosted their stock price significantly.
Just another friendly reminder to think before you trade, or at the very least do some research on the companies you want to invest your hard-earned dollars in. For example, a tiny bit of due diligence would have revealed the Nest Labs, the company everyone was so eager to get rich off of, isn't publicly traded.
This article is from the archive of our partner The Wire.
We want to hear what you think about this article. Submit a letter to the editor or write to firstname.lastname@example.org.