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Judge David Ryan • Location: Natick, MA
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The HSX Report -- 5/24/07
May 23rd, 2007 10:16PM

It's Pirates Day!!!

Shrek 3 and Spider-man 3 notwithstanding, the summer movie season really kicks off today, with the opening of the Memorial Day weekend film, Disney's Pirates of the Caribbean: At World's End. Pirates, with its massive media blitz and five-day holiday weekend open, will be the bellweather for this summer's box office. Were the better than expected opens of Shrek and Spidey flukes, or are we on course for another record-setting summer? Millions of H$ are riding on this outcome.... Well, we'll know by Monday night.

The rising tide of expectations seems to be floating all the boats, too, as my highly diversified portfolio had one of its best non-adjust-day gains in recent memory, up about H$1.2M. Of course that's less than half a percent return... but I'm not complaining. The biggest movers were some of the big upcoming summer films, too -- Transformers, FF: Rise of the Silver Surfer, Evan Almighty, and Knocked Up were all signficant Wednesday movers. Knocked Up's move reflects something you will occasionally see on HSX: the market pricing a stock to reflect its option. In this case, KNCKD's derivatives priced out at a $30M open; the stock duly moved up until its price reflected a $30M open, i.e. about H$87. The most interesting mover, though, was the 136% rise in the perpetually-in-development remake of The Secret Life of Walter Mitty, caused by news that Mike Myers may be interested in picking up that baton. Also moving up is Bruno, Sacha Cohen's Borat follow-up, buoyed by news that Cohen is actually in the process of filming it. (Many doubted he could pull off another faux-persona film after the attention showered on him after Borat; apparently, he can.)

The Girl from IPOnima

Two stocks an a fund today. In honor of that, today's topic du jour will be the HSX mutual fund scene. But first....

(1) Part-Time Pirates (PTPIR) -- H$25
I hate these kinds of IPOs. Here's a clever premise -- disgruntled employees raid their bosses' yachts -- with absolutely nobody attached, except Frank Coraci, the director of Click. I give you two options: one, the film stars Dave Chappelle and Topher Grace, with Tom Hanks as one of the bosses; two, the film stars Pauly Shore and Daniel Baldwin, with Ringo Starr as one of the bosses. Kinda affects your judgment of whether this stock merits a H$25 price, doesn't it? Everything -- including whether the film is ever made at all -- depends on who's going to star in it. Which we don't have any clue about right now. If it were a $10 stock, I'd say roll the dice. But at $25.... I can't recommend it now. Great premise, though.

(2) The Way Back (WAYBK) -- H$16
And here we have even less info. It's a coming-of-age drama. It has a teen protagonist. Wow, that only describes about half the films made in a given year. It's written by Nat Faxon and Jim Rash of Reno 911 fame, and directed by Shawn Levy. Three guys with comedy backgrounds doing a coming-of-age drama. It might work -- but I'm not going to pay H$16 to find out.

The third IPO is the Independent Film Fund III (INDIE)... which leads us to the topic du jour.

Vanguard this Ain't: HSX Mutual Funds

Mutual funds in HSXland are almost exactly like mutual funds in real life: you're buying a share of a managed fund of securities; your share value reflects the underlying assets of the fund. Unlike real funds, however, shares are not issued in exchanged for capital, which is then invested by the fund. In HSX, the fund manager is given H$20,000,000 to start with, and shares are priced as if they represented 1/1,000,000th of the fund (or, to put it another way, as if only 1,000,000 shares were issued). However, as with all HSX securities, there is no limit on how many shares of the fund can be outstanding. Therefore, your share probably isn't really 1/1,000,000th of the fund. But none of that is relevant, really -- what matters is that your share is valued at one millionth of the net asset value of the fund (including unrealized gains and losses), and the fund delists and cashes out when its assets hit H$100,000,000 (i.e. a share value of H$100).

What does this mean? It means that in practice, mutual funds are like certificates of deposit. All of the non-index funds eventually hit H$100M and delist, it's just a question of how long it takes. It usually takes a while, too. Worse of all, your potential gain is capped at 500%. Therefore, funds are rarely advisable for new or low-balance investors. They're just not a good investment unless you've got more cash than you can deal with. Then, it can absolutely be better to park the cash in a fund vs. letting it sit and gather its 5.25% interest. But for everyone else, why not spend the money on penny stocks (tomorrow's subject du jour), which can return thousands of percent in the same timeframe if luck is with you? Even educated guesses in the concept and develoment market can result in better returns than funds. Unless you're already maxed out on those stocks... which is when you turn to funds.

Don't get me wrong -- funds will make you money. I hold H$11.2M of funds, which have netted me a profit of H$3.9M. That's about a 50% return. So what's the problem? I've had some of these funds for years. It's dependable money, but it's not fast money. Just like a CD.

Funds tend to be "themed" on HSX. For example, today's IPO, the Independent Film Fund, invests exclusively in independent films (or films made by the "independent" wings of major studios, like Fox Searchlight). Surprisingly, you can sometimes parallel the HSX funds to similar real-life category funds. INDIE is an obvious one -- it's a small cap fund. But the HSX funds can get a bit... specific. There are genre funds, which you could view as similar to industry sector funds. And index funds, which track a studio instead of a financial index. But how do you draw a real-life parallel with the Babes Fund? Or the Overexposed Fund?

That's it for today. Tomorrow, we dance! Excelsior!


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