Hey loyal Insider readers! It’s been a while. Now that things have quieted down on the back-end of QS, I can return to my roots and begin writing again! I’m sure you all have loads of questions, so here are a few answers before I jump into my topic for the day. If you don’t wnat to read all the back-story about the last month, just search for “---” (no quotes) and you’ll jump right to it.
Where the hell have you been!?
Well, I’ve been abroad for a month, ostensibly “finding myself” and meeting up with Magic players around the world. More on this later. Before that, since around Thanksgiving, I was preparing all the back-end stuff for Insider with Chris, working out budgets with Doug, and generally making sure the site kept running through the launch. It was more work than I anticipated, as always, but I think you’ll agree that the efforts were worth it!
What happened with that Untapped Tour?
A lot happened. As I said, I meant to travel the world and do amazing things. A few issues cropped up along the way, some I am at liberty to discuss and others, not so much. At least a full week was lost to a stomach virus, which was an absolute joy. About 5 days into the trip, shortly after the BA Faces of Opportunity contest, my netbook died. This was my only real way to write, edit and post things on the site. Fixing it was not really an option along the way. Worst case scenario, right?
I had planned to spend my 10 days in New Zealand working on uploading a ton of media and doing some serious crunch-time work. Unfortunately, around lunchtime on my third day there, the entire city of Christchurch was levelled by a 6.3 magnitude earthquake. I was in the city center when it all went down, and I must say I’ve never been so terrified in my whole damn life. Thankfully I was outside when the quake hit, but many hundreds were not so lucky. I was able to help others in need, including helping a distressed woman locate her daughter at pre-school (she was alright!) Needless to say, my mind was a million miles away from Magic that week.
All of these factors combined to really screw up my plans for the tour, and I made the executive decision to simply kill it. I did learn quite a lot from my trip, and got some wonderful business advice for QS, from some really outstanding people. Look forward to a lot of great things in the future.
What does the future hold, then?
I can’t get too specific, but I can tell you where our thoughts are. First and foremost, as our Insider subscribers continue to grow, we’re looking at ways to keep adding value to our existing customers. We’re constantly adding writers, and your support is what allows us to pay them a fare wage, so thank you very much for that!
We’re also viewing QS as sort of an incubator for new technology in the TCG world. There are some projects that I wish I could discuss, but we’re looking at things that can automate the drudgery of owning Magic cards. We’re also looking at more efficient ways to gather, process and analyze data in our community, similar to how financial institutions use the internet to gather broad-spectrum market sentiments.
We’re always looking for new bits and pieces to add on, and that includes affiliations with other sites. We’ve had a few sites inquire about us perhaps rolling their technology into our site, and we’re in the early stages of working out those deals. If you know of anyone who runs a Magic site and might want to team up, send them to me (email@example.com) and I’ll get it started. The more outlandish and tech-forward, the better! We want to be at the forefront of developing tools for traders and players.
Today’s topic was suggested by reader Mark Slack of Columbus, OH. Mark wanted to know some stuff about taxes, and I promptly told him to ask Doug. He also wanted to know how I keep track of profits, losses and inventory. While there is no one right or wrong way to do this, I’ll explain what I do, and how your circumstances may vary.
This is a personal choice, but your goals and level of stock will help determine how to go about doing this. I have a LOT of cards. I get tons of collections from stores, trade at events, and a lot of people come to my store to trade in cards as well. Thus, i have more cards than i can process. This does not lend itself to a tight inventory system at all. For a long time, I tried to keep every card sorted, organized and indexed*, but when you have 50,000 cards that turn over quite rapidly, it becomes more trouble than it’s worth - literally. The labor required to keep the cards sorted and indexed is just cost-prohibitive since it scales with the size of your collection.
I used to use a digital system to inventory it all, but keeping that up to date was sucking out all my time. TIme that is better spent selling cards, buying cards, and trading cards. Time that is frankly better spent doing anything but indexing. If you’re a site like StarCityGames.com, which has a well-established platform and millions of cards in stock, then your indexing needs are much greater. I experimented with a web store, but found that at my level of stock, it’s just not too practical - yet! It’s all about knowing where to spend your time, and I view time and money in the same light. To me, money buys time. I can pay someone $X.00 to sort and index my cards, and that saves me time. I can remove the need to index entirely and save both time and money.
Sorting is, in my opinion, a non-negotiable necessity. When I opeend my retail store, I heeded the common complaint of, “They can never find any cards in that place”. My policy was, “I can find you any in-stock card in 10 seconds or less”. It worked, and people took notice. No matter your size, keeping your cards perfectly sorted will return many dividends. Selling stuff to dealers becomes a quick and easy exercise, handing someone a well-sorted trade binder demonstrates that you’re serious about the game, and building decks becomes almost academic. Sorting is worth the time it takes, but indexing the cards rarely is. If you have low turnover and not too many cards, feel free to try, but in my experience, indexing is best left for the pros.
If you don’t index your cards, then you’ll have trouble keeping track of your profits and losses (PnL). This is actually quite alright. Since you don’t have accurate records of what you acquired, when, and for how much, it becomes difficult to do any accounting whatsoever. You have to, on some level, trust your hustle. I know that when I buy cards from someone at $X in my store, I can usually sell them for around $2X. This is the same with most dealers. Our buy prices are set such that it is almost impossible for us to lose money. In rare events, buy list errors can cause loss, as can sharp changes in the market, but these are exceptions and not rules.
As someone who considers himself a data freak, it pains me to say this. Your specific PnL doesn’t matter. There’s a much better way to measure this. Cashflow. As far as I am aware, and I am open to correction, the IRS (and most likely, your government’s tax collectors) doesn’t really recognize Magic cards as a financial instrument. This is because there is no one specific value for a given card. You could aggregate buy lists to get an average sale price, compare it against eBay and the retail value of the card, but really, the IRS cares about money. If you sell that Beta Lotus on eBay for $50, two things are true: 1) You’re a moron. 2) The IRS doesn’t care that you bought it for $1000, nor does it care about anything other than the fact that $50 just hit your bank account. Depending on how you’re set up, you might be able to claim the cost of the lotus as an expense, but I know precisely nothing about taxes. Consult an accountant, not a journalist.
If you have a good idea of what cards are worth, your trades should always be profitable. It becomes irrelevant how profitable they are, because they’re not realized gains. To get an accurate picture of what you’re doing will take hours of indexing and charting. Hours that are better spent making some damn money instead. There are serious diminishing returns in this category. Using your instincts, a good mental snapshot of the market, and trusting your system, you can keep track of PnL by using online banking.
I like using PayPal, since I can get paid for almost anything that way. I have their debit card, which has pulled me out of some tough financial circumstances. It links to your bank account too. You can also use the debit card to withdraw cash, so your entire transaction history is reflected in your current balance. From there, just sum up cash on hand, accounts payable and receivable*, and your Paypal balance and keep daily track of it if you are really concerned. I find this level of accounting to be unnecessary, and just handle it at the end of the tax season. I trust my system to turn a profit, and focus more on cashflow than anything else.
The rate at which you invest and receive a return is more interesting to me than the specific percentages. As long as I’m not losing money or breaking even, I’m happy. Clearly, my system emphasizes the proper principles of trading, but that’s the scope of another article entirely - one I’ve written at least once. If your system works, you don’t need to control inventory tightly until you’re a real bona fide business entity with a ton of assets.
The drawback to this slightly inaccurate system is that it’s tough to get an idea of what your stock is worth. When I used a digital inventory system, I had a snapshot of my current inventory’s value and cost in realtime (based on my buy and sell prices). This proved useful in figuring out where to generate cash, but it’s pretty easy to eyeball your collection and guess where you have the most value. It doesn’t take a genius to go pop open your mythic rares and count the number of Jaces and Tezzerets.
By and large, the level of accuracy required scales with the size of your collection. Until you are at a very high level, I’d suggest not wasting the time. The only real reason to do digital indexing is for retail/online sales purposes. Otherwise, you’re simply not generating revenue from your actions, and thus, wasting both time and money. Inaccuracy is not a good thing, but when doing a cost/benefit analysis, a bit of inaccuracy can have a negligible effect on your bottom line when it’s understood and planned-for. 80% accuracy that takes no time is way better than 90% accuracy that takes a lot of time, and the returns keep diminishing from there. The best thing you can do is develop a trading system that’s profitable and stick to it. When you need cash (which is always, unless you have a ton of cash already), just use your instincts and sell off some overstock or at-risk cards that you suspect might go down. Whatever you do, don’t spend too much time on bookkeeping as a trader. Just get out there and trade.
*Indexing - The act of cataloguing cards on paper or in digital form in order to more accurately track performance of trades and stock levels.
*Accounts Payable and Accounts Receivable - the fancy way of saying “People whom you owe money” and “People who owe you money”. And how much, of course.