The more observant of you will have noticed that we’ve added a new broker – Jen Frisbee. Our brokers tend to be current or ex-member of the LTD Leaderboard, and adding Jen, who is a self-confessed newbie, was a bit of a change of direction. A few weeks back, we conducted a Q&A session, covering some of the thornier topics in HSX strategy. Obviously, a lot of the comments were time-sensitive and no longer apply but, for any other newbies out there, here are the highlights.

Jen: Tips and such would be VERY helpful. I’m at a crossroads now with my port and I could use a bit of advice. trying to figure out which strategy is going to help me grow to a reasonable size. For all of you who have built 200+ ports in one year, tell me. do you daytrade, work the openers, or try a number of things? I feel like I’m spreading myself way too thin.

Right now I’m doing a combination of things:

Usually investing in one opener & appropriate options

Investing in a few up & coming films

Picking up bottom feeders ready to delist

Picking up bonds just before adjust

I have limited internet access, so daytrading is really not possible for me. Any other ideas on ways to improve my port?

Jimmy: I guess I’m qualified. I do daytrade somewhat when I have time. I’m not great at it, and it can be a frustrating practice. Though, if you get the hang of it, it can also be very profitable. Make sure you keep an eye on openers, they tend to be the most volatile. On volatile days, try buy any huge downward movers when they rebound, and short any huge up movers when they start getting hit by profit takers.

I play all the openers. But that is just me. Openers are usually your greatest shot at short term gains.

With a big port, I can usually sit on all these stoopid limited stocks that delist at less than a dollar. I find that they tend to drop the weekend of their limited release as people who didn’t know they were limited see screen counts, gross and such. You might want to pick them up then for a quick strike.

Actually, picking up bonds after DP posts them seems like the best bet to me. Once he says a bond is going to have a huge drop, it tends to drop right away. Usually by the time adjusts roll around, it’s almost at adjust price. (Just ask Txredd )

Huy: Do you have a Target ROI?

Jen: No. OK. school me, oh wise one. Target ROI?

Fielding: ROI is king. Go to our site. Click on ROI Calculator. (Its the last offering on the right bar). Click on Tom’s explanation. Repeat when necessary. This is the single most important concept in portfolio construction.

Huy: As Fielding says, ROI is King (except, ironically enough, when you have a big port – say $200m+ – but you only get there using ROI). Ideally, you calculate the ROIs for every potential investment against each other and choose only the best ones. In the real world, you probably don’t have time. Hence Target ROI. It acts as a benchmark figure. Work out the ROI for potential investments and also investments already in your portfolio. If it’s below the Target ROI, sell it or leave it alone. If it’s above, buy it or keep it.

The other may disagree with me, but I think a Target ROI of 2% per day is a achievable up to $20m. In fact if you want to reach $200m in a year, a 2% target for four months (up to $20m), a 1% target for a further six months (up to about $130m) and a 0.7% target for the final two months will get you to $200m.

Jen: Thanks for breaking it down and making ROI manageable. I read the Seminar a while back, but what you just stated made it much clearer to me. I’ve been doing this without thinking. dumping slow-moving stocks, trying to focus on stocks with high short-term growth (or loss, as the case may be). but I haven’t been doing it with a target in mind. Hence I’ve held onto a few stocks that aren’t moving like they should. basically adding dead weight to the port.

Huy: One other point; shorting beats the usual Target ROI rule. If your short produces an ROI just below your Target ROI, it may still be worth picking up because you can reshort.

Jen: .and what is reshorting?

Huy: Reshorting. Hmm, Tom’s the man here. I think he even coined the term, but everyone’s using it now. His article on shorting and reshorting is one of the featured links on our awards page. Anyway, here’s the concise version:

You short NWBIE at $100. It drops to $80, but you think it will drop, further, to $60, in 10 days’ time. Your ROI is currently 1.55%. Good, but could be better. Here’s what you do. Cover your short. Then short NWBIE again. Congratulations, you’re in the same position you were in before, but you’ve also freed up $40 of cash. The ROI on your investment is now 2.26%. Now go and spend that freed $40 somewhere else.

The one thing you have to watch with reshorting is commission, which is why people prefer to do it on Saturdays.

General overview of the market:

Stocks

The heart of the exchange. I recommend you forget long term investment while your port is still small.

As for openers, take a good look at your record. How much have you won on openers and how much have you lost? Also compare the results of the openers you were certain of, and the ones you decided “to have a go” on. Your track record should tell you how much you should rely on your gut feeling for openers. Personally, I think that with small ports, you shouldn’t play openers unless you are certain. Too much risk.

Check the box office charts for arb opportunities on released films. Remember that the delist estimates are estimates and shouldn’t be trusted completely.

Bonds

Generally, not a good investment for small ports. Check the ROIs, how many are over 2%? What you can do is challenge DP’s assumptions. That’s the only kind of way that bonds will make you any real money.

Funds

There are no funds that I can particularly recommend. Wait for a DAILY or a HENNA *g*

Options

Again, no particular bargains on the holiday warrant front. You might consider shorting and then reshorting TALHW. Also warrants tend to react slower to news than stocks, and they don’t adjust. If unexpected box office figures come in, the warrant price may not yet take this into account. Options are definitely worth investing in. Also, remember to short options.

Jen: You’re absolutely right about the bonds. I don’t touch them unless the ROI is above 2, and then only cautiously. The openers are tough.I have a lousy track record with openers, so I’m wary of jumping in on close calls. I do pick up options and will sometimes even short both sides of the option if it looks like the strike price is right on targetbut there’s limited income potential given the small max # on the options.

The one thing that I neglected before joining up with you guys was the after-adjust purchase. Shorting TOYS2 on Sunday turned out well, and I’m sure that movies like Stuart Little will probably climb after the adjust. I don’t think most new players think to turn around and short a movie that they just held long on.

Jimmy: Shorting after adjust is usually a great move, especially in the spring and fall when movies have trouble making multipliers. However, sometimes if backfires.

Fielding: A couple of quick things:

1. 1. Whenever there is a gigantic increase of cash in the market, like when a stock adjusts over 30 points (say TOYS2), or a monster hit delists (say SIXSN), everything in the market goes up. In those cases, it is best to buy lots of small cap stocks on the Saturday before and take a nice little liquidity rise.
2. 2. If you follow (1), beware of an HSX-induced correction. If you have limited access, get out within 24 hours of the adjust/delist.
3. 3. Watch out for seasonal fluctuations. For instance, late November films have short legs whereas December films have super legs.
4. 4. There are a few massive bond adjusts coming down the pike. Check DP’s bond charts twice a week.
5. 5. December films starting next week will have super legs. Movies like MANMO, STLIT, and GMILE could have delists of 5x their open. Buy everything you can afford after the adjust.
6. 6. Whenever a movie does really well in release, HSX IPOs a sequel a few weeks later. You can buy it the next day for a quick 5-10 pop. If you can’t stay on-line for the run-up, you can use a limit order to sell it for you.

Jen: I’m finding that I’m making most of my money on the small-cap gains, like you mentioned Fielding. While I sometimes get lucky on a opening weekend adjust, often the openers’ stock prices are just too high for me to invest in any real quantity.

Fielding: Just remember that HSX likes to induce corrections to neutralize liquidity.

Jen: I’m curious. on upcoming releases, what kind of numbers are you expecting?

Huy: If you want to know what kind of numbers we’re expect, check the ROI lists at the site.

Fielding: For all port sizes, the port should be constructed based on ROI and risk analysis. Always invest in the asset with the best risk-adjusted ROI.

******

Quick tip: According to both Zentertainment and Aint It Cool, SPYKD is rumbling on. This is Robert Rodriguez’s next film. It’s due to start filming next spring, and Antonio Banderas may star (if he has time). SPYKD is currently trading at around $3, but will probably soar if Banderas confirms. At this price, where’s the downside?

-Huy