All over investment websites, business news channels and even the sides of towers in financial districts of major cities, you'll notice a neverending ribbon of letters streaming across. An alphabet for investors. CP, CPG, CSU, CTCa, the combinations continue until you think you'll catch the ZZZ's, only to find out that it jumps back to ABX. So, do you need to remember all these "tickers," which are characters representing the companies that trade under those characters?
I'm going to argue that remembering the symbols before realizing what the underlying companies are is a mistake. In the past year on the TSX, there have been a couple of tickers that have been changed by the companies, notably Shopify and Canopy Growth Corporation. Shopify used to be "SH" but is now trading as "SHOP" and Canopy Growth Corporation used to be "CGC," but now trades under "WEED." Although relatively innocent changes on the surface that allow for catchier tickers to be remembered, the changes show that "investors" in recent times seem to have shorter attention spans, probably thanks in part to social media and a general shift towards instant gratification. Do you like marijuana? Then buy WEED! Do you like online shopping? Then buy SHOP! Now, more than ever, investments cannot be quick decisions based on a handful of characters, and thorough research on each business should be conducted.
Take CTCa, for example (disclosure - I own shares of CTCa). CTCa is the ticker for the Class A Non-Voting shares of Canadian Tire Corporation. What many may not realize is that there is another ticker on the TSX trading as just CTC, which are the Common Shares. Although they are both shares of the same company, they have different dividend yields and benefits and do not track each other as closely as you might think. CTC has a lower dividend but gives the shareholder the ability to vote on company decisions and has a much lower beta (correlation with market index), whereas the non-voting shares do not give the shareholder the ability to vote, but provides a greater dividend yield and increased liquidity. To add to the mix, there is another ticker trading on the TSX under CRT.UN, which is a majority-owned subsidiary of Canadian Tire that holds the real estate Canadian Tire leases from. The dividend yield is even higher, and the shares are organized as a real estate investment trust, bringing different tax implications and multiple income types (capital gains and dividends) while focusing on a specific aspect of the whole Canadian Tire business. Here's a look at the varying performance of these different tickers over the past year:
Despite being the same company, the performance of each type of share of the business can be quite different.
Think about what each of these different offerings from the same company gives - options to investors based on their goals and risk tolerances. The lower-beta CTC is a good defensive long-term holding. Due to the voting ability of the shares, current shareholders are less likely give those shares up as a larger proportion of them will be company insiders and executives, and likely hold large quantities of shares. If you are excited about growth prospects and retail performance, CTCa will likely be the best pick with high volumes and more shares outstanding. And if you are looking to hold real estate anchored by a quintessential Canadian retailer with low vacancy rates and good income (cash flow), CRT.UN would be a great option.
Many of us have shopped at Canadian Tire, but what the ticker will not tell you is that you are not just buying Canadian Tire, but also Mark's Work Warehouse, Partsource, Sport Chek and Atmosphere. Without doing even a bit of research, investors will be unaware of this (potentially thinking Canadian Tire is solely stores labeled as Canadian Tire), even though they are all important parts of the whole Canadian Tire business. The wide net that Canadian Tire Corporation covers when you include these businesses fundamentally changes the appeal of CTCa, CTC and CRT.UN as long-term investments. Whether you need some new work clothes, specific DIY auto parts, new runners or some hiking gear, there's a pretty good chance you'll end up at a store owned by Canadian Tire Corporation.
Another angle when it comes to tickers is sector diversification. It is often recommended and beneficial to hold companies in a number of different sectors that are not correlated, to reduce the standard deviation of your portfolio risk and return. However, if you are picking individual companies from a number of sectors to create your portfolio, be careful that you aren't just picking any ticker just to have something from a sector. Although your intentions are good, you could make the mistake of picking a company that you don't know a lot about and may not be the best choice. Perhaps a sector does not have any appealing companies at the moment to invest in, simply due to sector pricing (too expensive) or an overarching sector challenge.
A good way to reduce the chances of falling into the ticker trap is by physically seeing parts of the company you are looking at investing in person. If it's a bank, go check out the nearest branch and look at the range of products being offered online. If it's a grocery store, go visit and see how busy it is and get a feel for the store. Find out about subsidiaries of a company, and whether any physical locations are leased or owned, which makes a difference to the Property, Plant and Equipment line of a Balance Sheet. Look at quarterly reports and find out where the majority of the company's revenue comes from, and whether that division has been growing or shrinking. Of course, some businesses will be harder to find certain information on or visit physically, but if it is so challenging to find any information at all, and you are left in the dark about the operations, perhaps it's best to put your money somewhere that can be more easily understood.
If you happen to remember tickers, don't fret. But don't forget that those handful of capital letters represents more than just a piece of virtual paper to trade, and it is well worth your time to investigate what business you are actually becoming a part-owner of.