rule of 72

Is there an inside joke in SAC Capital’s new name that everyone is missing?

March 12, 2014
March 12, 2014

The decision by Steven Cohen’s SAC Capital to change its name to Point72 seems pretty bland at first glance, referring to the hedge fund’s headquarters at 72 Cummings Point Road.

Here’s how the company—which is renaming itself following a major insider-trading scandal—described the name change in a letter obtained by Quartz:

Point72 Asset Management reflects at least two things of significance. First, of course, it reminds us of a sense of continuity: our headquarters has been at 72 Cummings Point Road for more than a decade and we anticipate it will be our home for many years to come. Perhaps more important, the name emphasizes we point to a successful future that rests on the exacting analyses of the companies, sectors and verticals by Point72’s portfolio managers and analysts.

While the address could well be the principal reason, the number 72 suggests another possible meaning that people seem to be missing.

In finance, the “rule of 72” refers to a quick calculation used to find how long it will take for an investment to double at a fixed annual rate of return. Basically, you divide 72 by the return on investment per time period (eg per year) and you get the rough number of those time periods it will take to double the investment. So an investment earning 6% annually would take about 12 years (72 divided by six) to double in value.  It’s only a back-of-the-envelope estimate, but it’s a good approximation for annual compounding. And 72 is easily divisible by many numbers so it’s easy to do in your head.

The rule was pointed out to Quartz by USC marketing professor Ira Kalb. He suggested that name changes generally work better if they help with branding rather than referring to an address alone, and that Point72 might work better if it was connected with the finance concept.

Branding might be less of a concern now as the company can only manage Cohen’s $11 billion dollar personal fortune rather than outside money, as part of a settlement with US regulators.

A spokesman for SAC declined to comment about the name’s meaning beyond the letter. 

Update 3/12, 2:59 PM ET: 

Well, maybe not everyone missed it.

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