The Thought Refuse

A Virtual Repository for the Mind

Cantor Fitzgerald Moving HSX Into The Real World

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The trading firm Cantor Fitzgerald will be starting a real world version of the Hollywood Stock Exchange – an online virtual trading world where players buy and sell movie and celebrity stocks.  Cantor will now offer movie studios to purchase bonds relative to a movie’s financial performance.

Cantor is actively recruiting veteran HSX traders to participate in advertising and selling these bonds to movie studios.  Cantor Fitzgerald needs “experts” to sell their product.  While there are undoubtedly individuals who have fared appreciably more successful then other traders on HSX, I’m hard pressed to say there are any “experts” in the fantasy trading game.

Let us assume the Cantor incarnation will operate similar to HSX.  A movie stocks price is based on it’s expected total gross(for wide releases four weeks, twelve weeks for limited release).  On it’s opening weekend, a movie will adjust according to it’s weekend gross along with an internal multiplier(typically 2.8).

Not unlike the actual stock market, the biggest gains or losses within a portfolio occur against opening weekend stocks.  Any particular stock will rarely rise or fall in price more then a few percentage points except on it’s opening weekend when it can take wild swings up or down.  As a rough estimate, about half of opening weekend movies will see a swing around 20-30% in price.

Collectively, these virtual traders are not especially good at predicting a movie’s opening weekend gross.  Moreover, neither are they skilled in predicting the four week gross for a film.  Substantial play money is made based upon post adjust movement, where in traders put into a reactionary mode responding to subsequent daily box office takes.

It won’t take long for someone to say, “It’s not the experts that control the price of a movie pre-opening.  It’s the tens of thousands of non-experts who do.”  While true, it’s also erroneous defensive of these “experts forecasters” because every non-expert is reacts lock and step to the weekly box office opening weekend predictions the “experts” release.  Like clockwork, when an forecast is published on a Monday prior to release, a movie stock’s price will adjust to fall in line with the prediction.

Confined to a controlled system, the “experts” are quite skilled at predicting.  But that’s like saying I’m quite skilled at knowing what I’ll be having for lunch today – maybe a turkey club on rye with lettuce and tomato, light on the mayo.  It’s as soon as the movie stock becomes subject to forces outside their models that things become volatile.  A stock sees it’s biggest single day movement on opening weekend adjust.  The time when the product escapes the grasp of any formulated and regulated system.  Having played HSX for eight months(and increased my port by 3,689.78%), the majority of my portfolio has been made or lost on opening weekend adjusts.  Does that make me an expert?

Probably not, but let’s look at how you become an HSX expert.  You begin with $2 million virtual dollars to buy and trade.  It’s not a substantial amount allowing you to only purchase a handful of big movie openers.  Let’s say that on my first opening weekend happens to be a major holiday.  I put in the bulk of my portfolio in the five films opening over the holiday.  I could only afford to buy a maximum share amount for three, while purchasing a pittance of stocks for the other two.  “If only I started with more play money,” I tell myself.

Let’s say I guess horribly wrong.  I looked over the “expert” predictions, and bought or shorted three of the movies.  The other two I went on a hunch.  Of my $2 million invested, I suffered $1.5 million in losses, effectively crippling my ability to further purchase movie stocks(luckily, being a virtual world, HSX allows a player to reload with another $2 million when his port goes bankrupt).  Debilitated, I’m immediately discouraged.  I deduce that I’m terrible at this game, and stop playing.

Now, let’s say I strike gold on my first opening weekend.  Both the expert predictions and my guesses were spot on.  My portfolio surges upwards by $2.5 million, more then doubling available investment capitol for future weekends.  I tell myself, “This is fun and I’m good at this.”  I continue on experiencing successive triumphs over the course of two months.  My total portfolio has now allowed me to purchase movie stocks that are not even close to release, affording me a sort of long term safety net against heavy losses.

Does my luck at early achieving initial success make me an expert?  It’s shouldn’t, but this is how our expert system operates.  You’ll never hear from those who bombed out on their first weekend, got angry, and stopped playing.  It’s only the ones that, by chance more then skill, hit the jackpot when they first dip their toe into the water.  You’ll never hear much from the loser’s in any game, just the ones that stumble upon initial riches that live on for another day.

Luckily for me, I was lucky enough to string together a few early successes in HSX.  Does that make me an expert?  No, just a survivor.  I haven’t fallen for the fallacy that luck made me good at forecasting.  The HSX experts now moving over to Cantor Fitzgerald to play their game in the real world(with real consequences) will tell you otherwise.  A self-proclaimed expert will, without fail, attribute his success to his acumen and skill – he knows where to find information and he knows how to interpret that information.  Their professional hubris is far too lofty to lower itself to the level of chance.

The most damage in any system not tightly controlled arises from the experts confidence in his knowledge.  Arrogance isn’t particularly affable to any outcome other then the one predicted.  If an alternative emerges, the expert is not prepared to soften the blow due to his insulated hubris.

I’m inclined to suspect that the Cantor Fitzgerald HSX stock market will be a wholly controlled system given that the producers of movies will be the ones purchasing movie stocks, and subject to a high level of manipulation and reduced exposure.  If a movie company knows it’s not going to put a movie in production, it’s not apt to purchase that movie stock.  Rather, it might short the movie bond knowing full well it has no hope of reaching a theater.

However, if it’s released into the realm of socio-economics, there will be plenty of depressed experts – plenty of losers.  And a few, randomly chosen winners who will tell you all about how good they are at predicting.

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Written by huxbux

January 7, 2009 at 7:08 pm

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