Strategy Guide Note: As tempting as this theory sounds, Tom would like to point out that he has never advocated it. Furthermore, it received a very quick revision on the back of the performance of the Matrix (-Huy).

“To hold, or not to hold, that is the question:
Whether ’tis nobler in the mind to suffer
the slings and arrows of outrageous prices
or to take arms against a sea of troubles
and by shorting, profit from them”
Back in January, I wrote a column (since eaten by the Great Gremlin of the Internet) describing the virtues of not holding any openers. I argued that even the HSBR columnists with the best track record for picking openers did no better than using a rule of thumb of “Hold no openers”. That is, if you held no openers, you would in all likelihood pick more openers correctly than you would if you tried to guess which ones were going to adjust up. I used historical box office performance, and about seven months worth of HSBR staff picks, as evidence. The reason that ths rule of thumb works is that most openers adjust down. When you try selecting that one third or so which adjust up, you will occasionally get some correct, but you stand an even better chance of getting them wrong, worsening your track record. I advocated a strategy of holding no openers unless you tracked your performance and you could consistently do better than the “No Openers” strategy ( I should have added a standing invite to write for the HSBR to anyone who can do this).

After the arrival of short selling with V2, I was not so sure that this strategy would work. I figured that short selling would put a damper on prices, preventing stocks from getting over-priced, and reducing the ratio of downward adjusters to upward adjusters. I therefore gave up on my “No Openers” strategy (converted to “Short all Openers” with the arrival of short selling), and would try to outguess the market. I also wanted to monitor my performance to see how I did.

When I did my previous analysis, it occurred to me that three possible forces could be at work corrupting my results: 1) Even though our brokers are some of the most experienced on the exchange, maybe we at the HSBR just suck at picking openers; 2) Maybe the magnitude of the adjustment matters – I didn’t factor the size of a large upward adjustment like DPIMP into my calculations; and 3) maybe the problem was seasonal, and summer movies would make up for it.

I dealt with the first problem by deciding to use the picks of the good people of the HSJ II as well as HSBR staff picks. I did this because their picks were public, easily accessible, and several of their columnists have a great reputation for predicting openers. I dealt with the second problem by using the magnitude of the adjustment as the measure, rather than just the direction. I couldn’t deal with the third problem since we haven’t had a summer season under V2 yet.

For this analysis, I looked at every weekend since V2 has been up (except the weekend of 2/12, when it wasn’t *really* up – the problems on the exchange meant no one at the HSBR was writing or picking, so I don’t have data). I then looked at the price of opening stocks at trade halt, the amount of the adjustment, and the amount you would have made or lost had you used each broker’s estimates as the basis for whether to hold or short. I then compared the results to what you would have made if instead of listening to us brokers, you had instead shorted every opening stock. I had only six weeks of data, so a few good weekends, one big upward adjuster, or a downward market correction could change the results for the future. With that in mind, here is what I discovered.

Short selling rocks. If you had shorted every opening stock, you would have made more money than by following the advice of any of the 21 columnists of the HSBR and HSJ II that I collected data for. The only possible exceptions to this is the HSBR’s Dr J and Chuck the Bond King, who only submitted picks for three, and four, respectively, out of the six weeks, but for those weeks did beat the “Short Everything” rule. Some columnists were closer to beating the “Short Everything” rule than others. Aside from Dr. J and Chuck, the five columnists who would have netted you the most profit were, in order, Beavis Las Vegas (HSBR), Susan (HSJ II), Dr Evil (HSJ II), yours truly (HSBR), and Obiah (HSBR).

Now, it is possible that these six weeks have been atypical. It is true that the last two weeks have been bloodbaths to every who held anything long, and if I had done this same analysis two weeks ago, the results would have been different. But not much different. The past six weeks have seen only three films worth holding long (OTHRS, ANLYZ and BABYG). All other upward adjusters were very meager (was anyone *really* bragging about calling EIGHT and FORCS correctly?) But many more openers were death to anyone who touched them long (JAWBK, TWOHN, OFFIC, DEEPE, WINGC, KINGI, RVNOS, TRUCR, DOUG, EDTV, and MDSQD).

Look at the above list, and ask yourself how many of those three upward adjusters you held long (I held ANLYZ, that is it). Then ask yourself how many of the big downward adjusters you held long (I got stuck with TRUCR and MDSQD). Did the wins outweigh the losses? Probably not (if they did, I may have a guest column spot for you on how to pick openers).

I will keep the atypicality argument in mind, and I plan on keeping my analysis of opening track records up to date, but until I see a definitive change (lasting more than a month) in the direction of this trend, I again plan on shorting every opening stock from now on. I’ll gladly give up the ANLYZs of the world to avoid getting my ass gnawed off by TRUCR and its ilk. Back before short selling, there was an excuse to holding long – it was the only way to have fun on opening weekends, waiting to see how much money you made or lost. Now that you can make money on the downside, and can experience joy in news that induces Universal executives into 25th story swan dives, there is no excuse.

Yours with Schadenfreude,

Tom