I truly believe that the key to being successful at this game is understanding the concept of time. HSX operates in a completely different universe than Wall Street. A solid trader can make returns on HSX in one week that a Wall Street trader would hurl his best friend out of a window for. This has serious ramifications for how you play the game, and the ramifications are not intuitive. I have a solid grasp on financial principles, but when I first started playing this game in June of 1997, I passed on 15% return on the Lost World, delisting in a week, in favor of what I saw as an 800% return on Godzilla, coming out in a year. Why Godzilla was a bad buy isn’t clear, until you do the math. I have beaten this point home before, but I thought I would present another way of looking at it, while giving you mastery of a common financial tool, “Banker’s 72″.

Banker’s 72 is a quick way to calculate doubling rates. Tell me, if you are making 3% per day on HSX, how many days will it take you to double your portfolio?  Banker’s 72 has the answer. You just divide the interest rate in question into 72, and the result is your answer.  For instance, for the 3% interest per day mentioned above, 72/3 = 24 days. A quick table:

You will notice that I always rounded off. You see, Banker’s 72 is an approximation, based on the natural log of two, or something (if anyone wants to explain it to me, feel free). I think it should actually be “Banker’s 69″, but “72″ is a much easier number to divide into, and a banking officer who says to his customer “well, lets just do a Banker’s 69 to see how fast your account will grow” is likely to get his ass fired.

So, you now have a quick tool you can use to figure out how big your IRA will be 30 years from now. But you also have a way of seeing how tiny differences in interest rates can compound over time. Here is another table, showing how quick an account with 2 million Hbucks will grow at different interest rates.

Now, no account on HSX is even close to 512 million after a year and a half of playing. This is because
accounts run out of high performing opportunities, but this table does go a long way toward explaining why Godzilla was a crappy buy when I started playing, and explains why STRWR and AUSTI are lousy buys today. STRWR will adjust ina little less than 90 days. If you are passing up 1% daily returns elsewhere to but STRWR, you are actually predicting that STRWR will open at over 4 times its current price. If you are passing up 2% returns (like SHKSP and ATFIR are close to offering) you are banking on an well over 8 times its current price.

This is just one more explanation of why HSX is a short term game. It isn’t because it is only fun to play short term stocks, as I have seen people allege. It is because the short term returns on things like the NominOptions, IPOs, arbitrage of release stocks, and holding openers vastly outweigh the returns on anything much more than a month or two down the road, for all but the largest portfolios, who have nothing else they can buy.

Take it to the bank,

Tom