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Shark Infested Waters

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By Stu Somers

Recently, a reader wrote in and asked a question to Kelly that involved this sentence: “I am not the best person at ‘trading for profit’ mostly because most of the players in my community are stone cold sharks.”
A fish, which is someone that knows nothing about values and you can easily expect to make value off of them. A shark is someone that will always trade for a profit. They usually know the values of cards and are extremely difficult to trade with, especially if you yourself are trying to trade for profit. You will more times than not just sit there, butting heads with each other and rarely work out a trade.  This will usually occur at larger events: GPs, PTs, Nationals, GenCon, etc. Needless to say, this is a good way to waste valuable trading time and lose value, but you inevitably run into them at one point or another and need to be prepared when you do.

However, as I have gotten more experience at trading, I have changed my strategy when it comes to trading at these events. I have gone from avoiding them all together to having close to a 50-50 split when it comes trading with sharks or fish. In my mind, sharks are just as easy to trade with, and they have the added benefit of gathering up all the cards you want already. They will almost never have cards that you don’t want. I am going to lay out some ground rules and tips and tricks in dealing with Sharks.

Rule #1: Do your research. The best way to be ahead of these sharks is to know more than them. This is the biggest rule when it comes to trading/dealing in general. A couple recent examples I have experienced will help illustrate this.

...what's the catch?

Example 1: A friend of mine recently wanted to start buying and selling cards like myself.  He found a collection to buy and offered $60 for it; there was a foil Daze, Aether Vial and some other random, smaller EDH type cards. He was very excited about it, however he also started listing off more cards he thought were good and I had to keep telling him they have basically no value or worth and he quickly got upset that he was only going to break-even or even lose money on his venture. If he had taken some time and just done some research he could have avoided this situation all together.

Example 2: This occurred at a Mid-west Masters event. I decided to do some light trading and see if I could pick up some random cards. The end of the day was coming around and there was one kid left, we shall call him Trader Joe. Trader Joe had been asking everyone in sight if they wanted to trade and was clearly a shark. He sits down with me and I let him pull out what he wanted and state his values. I proceeded to point to things and ask him what he valued his cards at. Things were going slow till I hit the foil binder. There I was greeted with $20 foil Daze, $15 foil Unmask, and $15 foil Russian Spell Snares. Unfortunately, other than a pair of Daze’s, the foils were pretty beat and nothing moves worse than played foils (he actually seemed confused that I didn’t want the played foils which got pretty annoying, go figure). So I ended up trading some chaff like Painter’s Servants and some lower end rares for highly sought after foils. There is always something these sharks will miss and undervalue and that is where you can pounce.

Rule #2: Let him lead himself into a mistake. I almost always let the other person tell me their values first because it usually makes the trade faster and much easier. I can’t count the number of times someone will be well overvaluing their cards only to hit a string of smaller, EDH-valuable cards and value them at like $1 or $2 when they are actually $4-5 each. It also lets you know what kind of pricing they are using. There are people that will use the dealers on site prices as a baseline or something closer to eBay or MOTL. This will keep you from losing in the trade as well as making it 100x easier to win the trade.

Hopefully your trades aren't this painful.

Rule #3: Be in control of the trade. Now, this might sound like it will contradict the previous rule, but in fact if supplements it. Once values have been assigned and you both know what cards interest you, it is time for you figure out what you are willing to part with and what interests you the most. Now, the sharks will want to not waste their time and not doing a trade after 5-10 minutes of posturing will severely put a damper on his day, so he will more eager to finish the trade, and this gives you a powerful advantage. This advantage is the word “no.” If the shark pulls a card from your want pile that makes the dealing less appealing, just say ‘no’ and threaten to end the deal. More times than not, they will reconsider it and a trade can still be had in your favor.

Rule #4: Number 1 way to come out ahead dealing with sharks is cash money. This is the reason that they are floor dealing: So they can cash out what they have gotten on the floor and claim their profit. Here is a warning though: some locations will not allow cash transactions at their tournaments and have strict policies regarding this, so use caution. I am going to assume you are in a situation where you can use money to close a deal. This will also establish you as someone they should consider coming to see again especially if your buy prices are reasonable and it might even attract other business as word of mouth spreads. I will easily take volume over per-card profit-margin any day, especially if it means repeat customers. This ensures future business and inventory, as well as making sure I always have the cards to provide to my network that I can also profit off of.

Rule #5: If you feel overwhelmed, just avoid the sharks. The best way to avoid getting run over by the sharks in the room is to just not trade with them. They might get upset with you or try to talk you back into the trade, but at the end of the day, if you do not feel comfortable making a trade do not do it. That goes for both with sharks and fish as well.

I am going to end this section of the article with that. It is easier to deal with sharks once you know what you are doing. Like I said, I have been doing it for some time and I am easily profiting. Now I want to do a quick paragraph on the tax implications of dealing cards.

There is a way for you to write-off expenses incurred while making money with Magic. However, there is a very strict way in which it must be done. The activity in question needs to be determined if it is a business or a hobby; in this case you want to be declared a business so as to reap the full benefits and tax breaks. There is a test in the Rules and Regs book that will help determine whether you are a business or not. A short list that pertains to Magic includes, but is not limited to:

  1. Whether the tax payer conducts the activity in a businesslike manner
  2. The expertise of the taxpayer or the taxpayer’s advisors
  3. The time and effort expended by the taxpayer in carrying on the activity
  4. Whether the assets used in the activity are expected to appreciate in value
  5. The taxpayer’s success in carrying on other similar activities.
  6. The taxpayer’s history of income or losses with respect to the activity.
  7. The amount of occasional profits earned, if any.
  8. The taxpayer’s financial status.
  9. Any elements of personal pleasure or recreation the activity might involve.

Now, if the examination of said factors leads to a determination that you conduct yourself like a business, then you can deduct all qualified business expenses from your gross income, even if there is a net loss. If you are determined to be a hobby, you can still deduct under itemized deductions, however you can only do this up to the gross income from the activity and a net loss may not be reported. You should be keeping track of profits dealing anyway, but now take care to track your expenses so you do not fall into any trouble with the IRS.

Store in the Spotlight- Empiregamessonline.net. Quick payments and very reasonably priced on singles
Player in the Spotlight- David Ochoa (that dredgevine deck is amazing)
Card Watch:
Non-green or black titans. By the time things finish, we might be saying these are the better ones in the format. While might dip in real life or plateau, online should see them rise.
Rishadan Port. The rumor of a new extended with Masques and up is gaining speed.

Buying High:
NL Wild-card and AL East Races- Things are getting pretty interesting all around.
Carniege Mellon University- Where I draft, 5pm on Tuesdays. Many WoTC employees are from here!
Pittsburgh Pirates Draft- One of the best overall in a long time by anyone.
Clique Vodka- Man, this stuff is everywhere and tastes great, could be the next big thing.

Selling Low:
Brett Favre- Just doesn’t seem to have it this preseason so far.
Soda Pop- Way too many calories, drink water.
Overcharging on From the Vault: Relics- Come on people, reward your customers for still coming to your store.
Yellow Light of Death- My PS3 died, $150 to get it @#*$@#$ fixed 

Posted in Finance, FreeTagged , , ,

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6 thoughts on “Shark Infested Waters

  1. Re: taxes…

    One thing that goes a LONG way toward making the IRS believe that you are operating a business and not a hobby is a separate checking account that all business activity is run through.

    This falls under the first category that Stuart mentioned of conducting the activity in a business-like manner. As simple as it sounds, having a "business" checking account, even if it's just a dedicated Paypal account really makes it appear that you are running this business legitimately. I've seen IRS auditors hang it up on this issue alone.

  2. I really enjoyed the part about using it on your taxes, that's something that's very interesting to understand the pros/cons of.
    The question I have with the sharks section is if they are always going to miss something and you aren't, then are they really a shark? Granted they may act like one, but if you are the "real shark" in this case and are easily making value then I have a hard time considering those people sharks in the first place. Semantics, I know, but what if you run into an actual shark not making these mistakes? Just duck your head and avoid them?

  3. I really think the term "shark" is really more for some one's effort in trading more than what they actually know. Trading is all about knowing more than the other person. I don't think anyone can know everything (even though I am trying to do something that will make me know a lot more than I do now and give me that edge).

    I think everyone misses something, so using Corbin's definition then "Sharks" don't really exist. It just goes towards attitude more than anything

    1. Excellent article.

      I always thought of a shark has someone who is ruthless when it comes to taking advantage of someone. Informational advantages are only a means to an end. This is in contrast with a middleman, someone who provides a service and is compensated accordingly.

  4. Unless you're keeping detailed records of your acquisitions (most importantly including tax basis of the assets), you would be hard pressed to take any § 162(a) deductions. I've never seen anyone trading at any tournament who would qualify. Unless you're reporting income on every barter transaction (which you may be required to do), then I don't think you can pull it off.

    It's actually an interesting question whether, if you trade cards for other cards, you recognize income on the gain or if you get to transfer your basis. If you're doing it as a business, it might qualify as a simultaneous 1031 exchange. I don't think Magic cards would be excluded by 1031(a)(2). I'll have to check and see whether there are any reported cases.

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