There is an inherent problem on HSX created by time. Return rates are generally so high, that any return less than 1% per day is generally sneered at by traders (even large accounts generally do better than that), and return rates of around 1% are usually only considered if the investment is very safe, such as arbitrage. Therefore, when a stock adjusts it needs to offer about a 24% (due to the effects of compounding) return over the next three weeks to be worth holding for the long haul. (Most traders don’t do the math, but they follow instincts and hunches which closely approximate the behavior of someone who has done the math.)

Stocks receive a 2.9x adjustment since that is fairly close to the multiplier that the average movie receives. Therefore, on average, stocks will delist at the same price at which they are adjusted, and in about half the cases, will delist at less than their adjusted price. Even those stocks which have a higher delist multiplier usually don’t make the 24% over 3 weeks profit margin criteria. Hence, adjusted stocks are almost always not worth holding and everyone sells.

So, what is a stock actually worth post-adjustment? If one assumes that any return of less than 24% over three weeks is unacceptable, a stock which is expected to delist at its adjusted price is actually worth 81% (1/1.24) of its adjusted price. (MNIRN fell worse than this because traders anticipate a lower than average multiplier due to the large number of screens and poor word of mouth).

So, why not just adjust opening stocks to a 2.4 multiplier, which would be commensurate with a 24% profit margin? Well, HSX used to do this (2.3x actually), and everyone complained since there was no reason to hold openers, as very few stocks ever reached this threshhold. Also, the best strategy in the game then became playing arbitarge, snatching up these stocks with the measly adjustment and holding them until delist. Traders complained that playing arbitrage was safe and boring, and they only bought arbitrage stocks because they had to in order to maintain their LB status. That is why HSX introduced the 2.9x multiplier system.

So, why not turn off volatility on adjusted stocks, making it worthwhile to hold openers and not causing a huge demand on the server since people know they need to log on to sell off? HSX certainly could do this, and they have done it on a few occasions. But there is another problem associated with this, although it is more of a problem in game concept. HSX uses the four weekend delist period in order to give a longer time frame for films to show their worth. Frequently, traders have complained that the four weekend period is too short, forbidding them from holding nice leggy films like TITAN, AUSTI, GOODW, etc. when there is lots of cash to be left in them. If HSX adjusts a stock and turns off volatility, they may as well ignore every weekend but the first and make the game solely based on opening weekend box office. While this is workable, I have a problem with it since it ignores the legs of a film and makes HSX become one more power reinforcing the “opening weekend is all we care about” emphasis that has had such a deleterious impact on the way Hollywood markets films. I for one like that the fact that HSX does look toward the longer term.

So, what are the options?

1) we can live with the system as is, with post adjustment stocks occasionally becoming arbitrage, but rarely being anything to write home about, and toning the volatility down to where it was before the last few weekends, when drop-offs have been rampant.

2) Turn off Volatility altogether on adjusted stocks, or just delist them after opening weekend, which is essentially the same thing.

3) Move to a dividend model, where every monday a stock is adjusted and its previous week’s take as cashed out, until the stock falls off the box office charts. The downside of this is that since HSX doesn’t run on a bid/ask system (nor should it – a bid/ask system for virtual money works much better in theory than in practice – ask anyone who has played The Box), they would need to adjust and hand out cash for 50-60 films every Monday. Bleah.

4) My preffered alternative: Shut off the volatility of adjusted stocks for one or two days after adjustment. If this were combined with the ability to short sell, released stocks might become interesting again a couple of weeks later, but automatic aribitrage, Sunday Night server crashes, and $20 MNIRN massacres should be a thing of the past.

“Garcon, more bearnaise sauce. The feathers make it taste a bit dry!”

munch munch

Tom Miller