Regular readers of this column will no doubt be familiar with the MTGO-to-Paper ratio, which is the price of a given set on MTGO divided by the paper price of the same set. This ratio is used to guide speculative purchases at key times of the year.
Although the ratio is imprecise, it gives insight into the MTGO market. I recommend reading up on it in this article where it was originally introduced, and in this more recent article where I have made some modifications to it.
The short version is that the ratio attempts to judge the value of a given set based on the price spread between paper and digital prices. For sets that are redeemable, MTGO prices should converge to paper prices over time as redeemers attempt to profit off of the spread. When the spread is large, as usually occurs in the Fall, then this signals a strong buying opportunity for speculators.
Today I’ll be judging the predictive powers of the metric by back-testing how it fared as a predictive tool in order to judge how sound the theory of redemption is.
In this article from November 16, I suggested that the MTGO-to-Paper ratio at the time pointed to Scars of Mirrodin (SOM) and Mirrodin Besieged (MBS) as the best speculative purchases to make. New Phyrexia (NPH) and Magic 2012 (M12) on the other hand were judged to have less value in comparison.
To see how the metric fared, I will compare theoretical purchase of the SOM and MBS mythic rare indices against the NPH and M12 mythic rare indices (Historical prices courtesy of MTGGoldfish.)
|Index||Nov 16 Price||Post-Rotation Peak||Date of Peak||% Gain|
|M12 Mythics||3||5.5||May 10, 2013||83%|
|SOM Mythics||3.15||6.7||July 22, 2013||113%|
|MBS Mythics||3.2||6.5||Apr 4, 2013||103%|
|NPH Mythics||5.2||10.4||July 22, 2013||100%|
Looking at the data, SOM has the edge in terms of gross gains, but both SOM and NPH are continuing to rise and probably will do so until the redemption cutoff date in November. The rise of the MBS mythic rare index was cut short by WoTC running out of redeemable sets. Once that happened, the prices of digital MBS cards began falling as they no longer had any value to redeemers.
On first glance, the ratio has held up as a predictive tool, but it's not a conclusive victory. With a medium-term outlook, speculating on any of the SOM block sets by buying the mythic index would have yielded nice profits. This suggests that my original recommendation to favor SOM and MBS over NPH wasn't entirely accurate, but clearly M12 mythics were the worst on a relative basis (though still profitable).
Rares Versus Mythics
A big part of the redemption story is that mythic rares are the bottle neck for redeemers. They are scarcer, and one needs all cards from a given set to redeem, so they should see the biggest prices moves.
With the available data, it's relatively simple to explore this idea further. Here's how the ratio did for the various indices, this time including regular rares as well as mythic rares.
|Index||Nov 16th Price||Post-Rotation Peak||Date of Peak||% Gain|
|M12||0.8||1.4||May 12, 2013||75%|
|SOM||0.8||1.7||July 22, 2013||113%|
|MBS||0.8||1.7||March 28, 2013||113%|
|NPH||1.4||3.3||July 22, 2013||136%|
Here we see a slightly different story. The gains for SOM are unchanged and the gains for MBS increase somewhat. M12 fares worse by including the regular rares, but NPH gets a substantial increase in returns.
In hindsight, the absolute best investment from the rotated sets would have been buying all the regular NPH rares, and avoiding the mythics! If you strip out the mythics from the NPH index, then the returns jump to 141%.
Again, the hypothesis is confirmed, but weakly. Focusing on mythic rares should on average increase returns relative to normal rares, but there can be notable exceptions.
Room for Improvement
So what's going on here? On the surface, it looks like the ratio is a mediocre predictive tool. But the sample size is small, and the results of back-testing the ratio are mostly skewed by NPH, an unusual set.
NPH has many powerful cards usable by a wide number of decks. Some of these are colourless, like the mythic rares Batterskull and Karn Liberated, but the powerful Phyrexian mana mechanic also means NPH has cards like Birthing Pod and Spellskite. Also, the 3rd set effect means that NPH is scarcer on average than either MBS or SOM.
A better test would have been to use the ratio to determine the sale date, and then compare returns. Also, returns should be annualized. If you could get 100% returns on SOM mythics in a few months, then theoretically you could take those gains and put them to work elsewhere, thus increasing your returns over the year. Comparing gross percentage gains across different time frames is somewhat problematic.
The ratio is evolving, and my understanding and use of it is changing too. Looking back on how it fared suggests that it has strongly confirmed the broad trends in the MTGO market, but that it is a weak tool in evaluating the merit of speculating on different sets.
The actionable plan for speculators should be to include rotating cards as a core holding of any portfolio during the winter months and to worry less about picking and choosing winners between sets.
This is a brief rundown of what I am buying, selling and watching in the market in the last week.
- GTC Boosters are now the most expensive of the RTR block boosters, and I've completely sold down my stock on these. I've also sold down some copies of Thragtusk, most of my Geist of Saint Traft and Restoration Angel. Thragtusk has fallen far enough though that I think I'm better off holding my remaining copies for a price increase in late August, early September as players tire of the M14 drafting and look towards Standard for something new.
- Return to Ravnica (RTR) block mythic rares of all shapes and sizes. Also, Mirror-Mad Phantasm and Helvault.
- Rise of the Eldrazi (ROE) mythics and rares played in Modern. Prices have fallen on cards like Linvala, Keeper of Silence, but I expect strong rebounds by the time Modern season rolls around.
- Innistrad block and Magic 2013 mythic rares. These will all be coming down in price, and I have been keeping track off the new digital-to-paper ratio for these sets on a weekly basis. Mirror-Mad Phantasm briefly touched 0.25 tix, which is a very strong buying opportunity. Most of the rest of the mythic rares do not look like good value at the moment, but if they hit 0.5 tix or less, they should basically be a snap-buy.
- Prices on RTR and Dragon's Maze (DGM) boosters have started softening during the week of Cube draft. Expect this trend to accelerate once we get into the M14 release period. Scooping up a number of these with an eye to selling in September seems like a reasonable plan. Worst case scenario is I'll be left with some boosters that will appreciate in price over the winter.