This is part two of a series on “Mistakes We Make.” The first article, available here, outlined some common errors that many MTGO investors make and highlighted rules we can learn as we manage our portfolios. Today we'll focus on some other frequent mistakes--and how to avoid them.

Not Monitoring Your Portfolio

One of the biggest mistakes we make when managing our MTGO collection is to lose sight of what we are trying to do with our portfolio.

On Magic Online, the transaction costs to buy and sell cards are quite low—especially compared with paper—so there is no reason to sit on cards unless you need them for playing or think they will appreciate in value. A lot of people forget—or never realize—how much value they are sitting on in their collection, and fail to leverage that value to achieve their goals (whether that goal is to make tix or to build a deck they enjoy playing.)

Most people have a lot more money locked up in “passive” assets then they imagine. Here’s a little exercise: go to this link on MTGO Traders and have them price your collection. (Cardbot and MTGO Academy have similar "buy collection" services that allow you to see what your collection is worth with no obligation to sell.)

Chances are, your collection is worth more than you thought. However, a lot of that value is tied up in “dead wood”—cards that you drafted or bought at some point but are neither playing with nor actively speccing on. In many cases, your “dead wood” is actually rotting away, with many of your cards losing value with rotations and reprints.

If you have a lot of dead wood, you may want to consider selling a lot these cards to create some capital for other opportunities. (In a future article I will discuss the best ways to save time and money in doing this.)

From member responses, it looks like passive collection management is a common mistake. Here are some good perspectives from QS Insiders who have had similar experiences:

My biggest mistake so far was forgetting that I have a life outside of MTGO investing. This became especially problematic when I got too busy in real life, and forgot to move out of my ISD positions before they rotated... So now I'm sitting on around 1000 checklands worth 25% of what I bought into them for, and another 500 tix or so of other random M14/ISD specs.

Lesson learned. Since my primary job (restauranteur) is seasonal, I avoid all specs that require a summer sell off, with the exception of boosters, since they are quick and easy to track/sell.

Short form: Be aware of your time limitations, and how they could change due to life events! --BanzaiTron

Be sure to check your checklands...

As Cooper notes, effective portfolio management requires consistent attention:

The thing about the MTGO market is it is harder to get burned unless you don't keep up to date on your collection. This is a huge thing I have learned, if you want to invest on MTGO, you need to be checking your collection daily at minimum. Watching trends/twitter/etc OFC help a lot as you know.  --Coopes (@cooperribb)

Not everyone needs to check their collection every day—it depends on your goals and your available time. But if you don’t check in regularly you will get burned by reprints and rotations. Fortunately you are a member of QS, and the forums are a great resource for staying abreast of developments without spending a ton of time.

[pullquote]For each item in your collection you should have a purpose. [/pullquote]Keeping track of your portfolio is important in order to know the purpose of the various cards you own. Are they for playing? For short-term speculation? To stash for the long term? For each item in your collection you should have a purpose. Here’s a good analysis by J.R. (@time_elemental):

Know exactly what you have, in a sortable spreadsheet. Try to be ready for when flashback drafts are announced on Wednesdays and move quickly to sell any rares/uncommons you have at old prices. In fact you shouldn't have many cards in your account other than the decks you're playing, true staples that haven't gone through the roof and "positions" that you think are going up.

I think people are too mentally attached to MODO cards, but they are so easy/cheap to get in and out of, it's pretty different than paper. Maybe this advice is not useful to someone with very limited resources that only has one deck on MTGO, but keeping fewer cards just reduces the mental clutter and cuts down on stuff falling through the cracks. --J.R. (@time_elemental)

There are some excellent QS articles about how to keep track of your portfolio—check them out:

• Insider: Getting Started in MTGO Speculating by Matt Lewis: The opening advice is key: "Set up a spreadsheet that will be your trade book. Do not skip this step! You are going to record all relevant information here. Name of card, purchase price, sell price, dates and motivation for buying. Most of this is just basic accounting, to know when the tix left your collection and the card arrived. When the time comes to sell a card, you’ll want to figure out if you made or lost tix in order to do a thorough analysis of your specs. A subtle point here is the motivation for buying. This is important for new speculators. If you don’t have a good reason for taking a position, then you probably shouldn’t take it...Writing down your motivation creates a concrete record of what you were thinking at the time of purchase."
• Insider: Managing Your Portfolio by Sylvain Lehoux: Sylvain advises, "Keep track of every single card/booster you buy and sell is probably the best favor you can to do yourself if you’re not already doing it."
• Insider: Excel for Fun and Profit by Matt Lewis: Matt describes some more sophisticated Excel macros (not for everyone, but can be very helpful).

If you employ these tips you will keep money from falling between the cracks.

Ignoring Opportunity Costs

This is connected to the mistake above, but opportunity cost takes different forms. One cost is the value of the potential tix you have locked up in specs. Another is the value of your time, which is significant.

We all have a limited amount of time allotted for Magic, and using that time to execute onerous, low-margin trades is a waste when you could instead be playing matches or brewing decks. Arbitrage (finding a buyer paying more for a card than another seller is selling it for) is a surefire way to make money, but at the cost of your scarce time. Here’s Coopes on the subject:

Another mistake would be trying to grind the profits off arbitrage (I'm talking one selling booster for 1.50 and another buying for 1.60 ), it's usually too small and not worth the time/effort as you just lose tix. Learned this the hard way as well. --Coopes (@cooperribb)

Sometimes we are not losing money, but we are losing money relative to what we could be making if our tix were invested elsewhere. This is a classic definition of opportunity costs.

One part of my money went to "old" Legacy/Classic cards. I bought several copies of Wasteland, Gaea's Cradle, Mishra's Workshop and Force of Will. My concept at the time was that these cards will simply age, as in paper mtg. That was ignoring that nothing is set in stone on MTGO. There's no reserve list unlike paper mtg. And as we know right now, you only need a reprint or two to erase two or three years of profit grinding. I was finally able to sell them about 6 months to one year later with no loss or a minimal profit. But, buying staples of eternal formats and sleeping on them for ever is definitely not a strategy online. –Sylvain Lehoux (@Lepongemagique)

Bulk is another hit or miss investment strategy. Buying a portfolio of penny rares at their bottom can result in nice gains, as with Nightveil Specter, and it’s a strategy Matthew Lewis has written about. But it can also be time consuming and tie up resources. Jacob Corey reminds us never to forget the opportunity costs of taking a certain position:

I also feel that a big mistake was spending tix early on bulk cards.  It was not until a little ways into this test run that I realized I needed a tighter buylist to succeed. None of my bulk speculative targets hit.  I bought a few when I first signed up for this forum because I was ignorant and followed the advice from an article blindly. I don’t think this cost me much money, but I spent several hours buying hundreds of copies of about a dozen cards that I never ended up selling for more than .05 tix each. --Jacob Corey

Buying Too Late:

With markets, timing is everything. Of course, it’s extremely difficult to time markets, but there are certain patterns that you start to recognize. If you see a card rising, you want to try to make sure you are on the leading edge of those gains rather catching the tail end. Speculative bubbles are quite common in MTGO, and you want to make sure you are not buying in at an inflated price right before the bubble pops. Here are some thoughts from Nick Becvar and Coopes:

My big mistakes there have been buying too late. I bought Trostanis and Ral Zareks when they jumped, after they had already increased a bit. Then I decided to keep holding once they went up a little more, and they crashed pretty fast. Outside of that, similarly, most of my specs are successes. I do a lot of booster spec, and then my other ones have been Modern related (buying 3-5 months ago waiting for Modern to start) and also buying right at the end of flashback drafts on the rebound (Dismember, Choice of Damnations good examples). --Nick Becvar (@Becvar)

Biggest lesson I'm still learning to this day is when to sell and when to buy. Of course I made profits on the Vintage Masters, but I could have made much more had I centralized my choices rather than just branched out. I chose a safe route, but I feel there was still more profit and better choices to be made. ( like i said in my post, fetches would of been an incredible place to go deep into. Onslaught and Zendikar. I would of bought 20x of each had I known now, instead of 8x of each.     -Coopes (@cooperribb)

How do you know if you’ve missed a spec and are getting in too late? Often times it’s a matter of practice and experience, though there are no doubt metrics you could apply as well. But those are topics I’ll delve into further in a future article.

Selling Too Early

This is a big one for me--I tend to sell too early on positions that still have room to grown. I have forfeited half my profits on successful specs on fetchlands, Goremand, Daze, Liliana of the Veil, Disciple of Griselbrand, Torpor Orb, and others. Sure I made tix, but a more careful reading of the market would have allowed me to do even better.

I did well on these, but not well enough...

Psychologically, it’s easy to rationalize selling too early since “you are already up,” but it’s always important to take a look at a card's fundamental trajectory. Look at the sell price you are getting and ask yourself the following questions: "If I didn’t own this position and were starting with a blank slate, would I buy at this price?” "Is my current position better than the other places I could park my tix?" If the answer to these questions is “yes” then you should not sell.

Selling too soon is another winner, i remember being very happy i could sell my 50 packrats i bought for 0.1 for more then a ticket, but they just kept rising a lot higher then that, that was a sour moment.  I expected that to be a short term boom... --Koen koen_knx

Sylvain has some bittersweet experiences with his early investments as well:

I started speculating when Modern was introduced. At that time, anything except Tarmogoyf and Dark Confidant was extremely low. And it's just insane when you look back three years ago at the prices of 90% of current Modern staples. 1000 tix well invested back then would probably be 10,000 to 50,000 now.

I remember that I had bought a playset of several cards that I thought would be good investment. For instance, I got a playset of Goremand @ 0.2 tix/each, Chord of Calling @ 0.35 tix each, Windbrisk Heights @ 0.4 tix/each and Verdant Catacombs @ 2 tix/each. I think I sold them when they doubled, only. That was nice at that time, but whoa, so cheap right now!

But after the first year, and with the introduction of MtgGoldfish and prices history, it was more and more clear that Modern has cycles that could be exploited for nice profits with very low risks. -Sylvain

This last point is very important. Past cycles and price histories can guide us and keep us from selling ourselves short. Before selling a card that you think has "peaked," do some analysis of why it might be peaking. Is this the result of a short-term fever (a Pro Tour spike or a new deck emerging) or of strong fundamentals?

A Deal Too Good to Be True…

If something seems like a steal, it may well mean that you're getting scammed or missing critical information. Here’s a couple examples from Aaron Stuckert:

There was the time I bought 12 of Ted Knutson's Dark Confidants for 25 each, trying to score some free arbitrage with Aboshanbots' buy price of 27.  Obviously Aboshanbots stopped buying after 2 copies and I was stuck with a bunch of peak value Confidants.

Oh yeah, and that time I found 4x foil Gaea's Cradle at Supernovabots selling for 48 each and did a quick search at MTGOLibrary to see if they could be arbitraged.  I see a sick bot named AllFoilzOnly offering 60 each!!  Wow, what a mise!!  I buy them all and head over to collect my well-deserved profits only to find that he has a total of 10 tix.  In hindsight, I was actually pretty lucky since they literally never restock tix and almost never have more than 1 or 2 tix available.  It probably took me 1.5 years to cash out, and I was pretty loose with my purchases too. --"Acceptable Losses" (@Aaron_Stuckert)

It’s quite common for the highest buy price to be a bot with few or no tix, and you could get stuck holding the bag. Make sure you double-check your out before you commit to a spec.

That’s it for this week. Hope you learned something from my mistakes, and from those of your fellow speculators. I will probably revisit this topic once more this summer, so please let me know if I missed any major mistakes that are have tripped you up in the past.

-Alexander Carl (@thoughtlaced)