Sometimes CDS Is on the Wrong Company

People sometimes buy stock in the wrong company, you know. There is some news about a company, and people go out and buy stock in a different company with a similar name. We talk about this around here occasionally, when it is silly and obvious—when Google announced that it was buying a private company called Nest, for instance, and the entirely unrelated stock of Nestor Inc. (ticker: NEST) was up 1,900 percent—but I bet it happens more often than that. I bet there was someone out there who bought stock in Time Warner Cable (TWC) because he really liked watching HBO, which was owned by Time Warner Inc. (TWX). Both companies have been acquired, eliminating this particular confusion, but it was confusing! Why should you have to read all the way to the third word of a company name to know what company it is?

Really I imagine that there is a lot of this in every area of finance. People probably buy municipal bonds of Portland, Oregon, thinking they’re bonds of Portland, Maine, or vice versa, or whatever. There was an Uber driver who thought XIV was a high-performing company—“not sure whether it’s in biotech or a technology business, but they’re up 80 percent this year”—and was surprised to learn that it was actually an inverse exchange-traded note linked to volatility. Finance is complicated, and human stupidity is infinite, and a certain amount of inattention is surely rational, and most stocks are kind of correlated with each other. If, like, 1 percent of stock investments are in the wrong stocks, well, there are worse problems.