Dream Cache – Business Concepts

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One of the prime mantras of Quiet Speculation is that you should treat your trading like a business. It can obviously be a great pastime and hobby in addition to actually casting magical spells, but you should apply some rigor to your work to get good results. There are three business concepts that I will be telling you about today. These are the concepts of “time-value,” business costs, and efficient pricing. Knowing these three ideas will help you trade and invest effectively.

See the friggin' problem here?

The concept of time-value breaks down into a simple idea: it’s better to have a dollar today than that same dollar tomorrow. The reason is this – your dollar gains value every day. In the finance world, this means that you are drawing interest on that dollar every day you have it. That interest makes money on interest, and your pot of money grows exponentially instead of just linearly. We can expand our view out, both in scale and in time. It’s definitely better to have $10,000 today than a year from now. Earning it today and investing it with a 4% interest rate would give you an extra $400 at the end of the year.

Understanding time-value helps us understand and manage our greed as investors. If we are looking at a card with a basically flat value, then it is better to get rid of it today than to hold onto it for later. If you’re stockpiling those Formations on the off chance that Banding will heat up, you’re better off cashing them out, since they won’t ever appreciate in value. The money you have tied up in those cards can work for you in better ways.
You can apply this principle to your greater collection. Do you have cards that have sat around, unused? Are they worth something, and is the value not increasing (at least above inflationary prices)? It’s time to get rid of those today and turn the money you get from them into a resource that will actually gain more resources. For example, about seven years ago, I bought an Island of Wak-Wak because it is very silly and I wanted to own a “really old” card. I bought it, beat, for $15, which was a lot of money at the time. I never played it in a single deck and it did not bring me a whole lot of pleasure sitting in my binder. I finally decided to cash in on it because it was not going to show any real gains. I sold it, five years after buying it, for… fifteen dollars. I got my money back at least, right? Wrong. That $15 actually lost money, because it was subject to inflation and it could have been earning me money by being a more upwardly-mobile card (looking at you, Tundra). Simply putting it in the bank would have earned $3.25 for parking it there. Take a look at your cards and get rid of the ones that are neither useful, nor steadily gaining in price.

The next concept we will look at is the cost of doing business. This is that hidden premium you have to attach to all of your transactions to see if they are really valuable. For example, we bought a collection from a good friend and we want to sell it. There are some money cards that we will sell on Ebay. Then we’re going to ship the rest to a store online and bulk it out. We have to deduct at least 12% from our Ebay profits for listing fees and PayPal fees. When we sell off the rest of the collection, we’ll be out at least $15 for shipping the collection. Now, we’re looking at a mathematical formula where our profits are .88x + y  – 15, where x was our Ebay sales and y is our bulk sales. You can see how you can get rocked on the cost of just “keeping the lights on” when it comes to selling cards. You can take this to the extreme  - the cost of gas to drive to the post office, the electricity used listing those cards, etc., but it is a waste of time at that level of scrutiny.

Knowing how much you have to spend to even start to make money lets you evaluate whether or not to take on a project. If I told you I would sell you bulk commons and uncommons at $4/thousand, and you knew you could make a profit of $5 per thousand uncommons, just by going through and sorting them, would you do it? What if they were all old uncommons that you had to look up? If it took you roughly an hour per thousand cards, you might find 300 uncommons – now you’re earning a kingly $1.66 per hour! Out of that pile, you must deduct the cost of shipping those bulked cards off to a buyer, and you realize that you would have to have some pretty special circumstances to take me up on my offer (and yes, I do realize that after a certain point, you would have all the uncommons memorized!).

Wait, VISA takes payment in Vengevines?

The last concept we’ll look at is efficient pricing. A card is priced efficiently when everyone is buying and selling it at the same price. If people aren’t in agreement, you have opportunities for arbitrage. Arbitrage is essentially buying the Vengevine from Peter for $25 and selling it to Paul for $30. Peter and Paul don’t know that each other has a different buy/sell price. In financial markets, fortunes can be made just by realizing that one person is buying an item for more than (or less than) someone else is selling it for.

One of your goals as a trader and seller is to sell to the people who will give you the best profit. Consequently, you’ve got your buylists from websites that you check to see who has the best prices on cards. However, did you know that you can make money without first having the cards? I found one website awhile back that was buying Hatred at $2.50. That’s a good price, and I checked around and found another site selling the card for $1.77! I could make 73 cents per card, just by knowing something that the buyer and seller did not. This is the way to really profit from information in Magic. In my situation, the seller only had three available, meaning that I would stand to make only $2.31 for my troubles. Like we looked at above, it was not worth doing the cost of business for me at that price. However, when you can find larger discrepancies, or you can move larger volumes of cards, you can exploit arbitrage. Perhaps the best place to do this is on MODO, where you can buy and sell with very low overhead costs. Though bots are a bit more calibrated as far as buylists go, you can still make small margins, over and over, if you look hard enough.

When you internalize the ideas of efficiency, hidden costs and time-value, you can make better trades and smarter online purchases and sales. Know that your big box of bulk commons and uncommons might not be worth sorting, and that your Guardian Beast is better when it is transformed into a stack of dollar bills. Over time, you will get better at blending these three ideas together, and you will make more money from Magic.

Douglas Linn

Doug Linn has been playing Magic since 1996 and has had a keen interest in Legacy and Modern. By keeping up closely with emerging trends in the field, Doug is able to predict what cards to buy and when to sell them for a substantial profit. Since the Eternal market follows a routine boom-bust cycle, the time to buy and sell short-term speculative investments is often a narrow window. Because Eternal cards often spike in value once people know why they are good, it is essential for a trader to be connected to the format to get great buys before anyone else. Outside of Magic, Doug is an attorney in the state of Ohio.  Doug is a founding member of Quiet Speculation, and brings with him a tremendous amount of business savvy.

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3 thoughts on “Dream Cache – Business Concepts

  1. Great Article Doug!

    I agree for the most part with everything you said in the time-value section, I was wondering if there is a specific rate of return that you aim for when it comes to cards accumulating value in your collection, and how often you keep tabs on it. I assume it is more of a fluid system more than anything, but more so i am just seeing what indicators let you know when it is time to cut your losses or move on.

  2. Glad you liked it, Pat! It's kind of hard to set a rate of return in Magic, since most things just nuke the investment dream return of 10%. You can easily get 400% ROI in one week on a playset of cards! I suppose mine is more fluid, but I try to shoot for a 40% ROI, which is good for more expensive cards (ravager, Sneak Attack, etc.).

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