Welcome back readers! One of the first things you might notice is the title... 201, you ask, when did you publish 101?
The short answer is I didn't. But as you're a paying member of a website devoted to making you money off of Magic via good speculation, thus 101 was joining this site and reading the forums. So you passed that course already, but now we'll delve a little deeper into the concept of speculating.
Speculating on goods has been around for a long time. In ancient times people would store food when they were concerned about future weather or crop yields in order to 1) eat later and b) sell later for a higher profit to the people who didn't store up food. The simple concept of using the resources at your disposal to make larger gains in the future by postponing current profit is the essence of speculating.
Not only do you get the future reward when you're correct that the items you bought at a low price are now worth more, but also a feeling of accomplishment that you followed your intuition and it paid off. (But hey, you already knew that; consider it the refresher.)
Profit to Effort Ratio (P:E)
Since everyone's goal here is to turn a profit (whether to create enough wealth to give up your existing job or simply to play a game you love for free), we need to first determine our profit-to-effort ratio.
One way to think of this is as dollars per hour (as anyone who works hourly can tell you, it's a pretty simple concept). Another could be rate of return per month, quarter or year. Personally, I use dollars per hour because it's such an easy concept and I haven't been tracking my spec targets as carefully as I could.
Billy buys 60 copies of a card at $1. He waits two months and the card doubles to $2. (Good Job Billy!)
But what does he do now? He has lots of options.
- Sell them on eBay for $8 a play set (losing $0.80 in fees). He'll make $7.20 per play set or a net profit of 80 cents per card. Let's assume he sells one play set a day, it takes 10 minutes to put up the auctions, and 15 days to sell them all. His total profit (after subtracting initial investment) is $48.
- He could sell them all to a dealer's buylist at $1.50. He'll make $30 profit but he'll do so in a matter of minutes (we'll say five) rather than 15 days.
- He could trade them into more valuable cards that he needs for tournaments, but he'll probably lose a bit of value trading up (let's say he trades all of them for a play set of a $26 card). His profit is actually -$60 until he sells the cards he traded for, but he could look at it as a discount on his $26 cards and still feel like he "made" $44. This might take a couple hours of searching for a trade partner and trading.
- He could trade them for 30 cards that buylist for $3.25. He'd have to first find these cards, and then trade them at a 2:1 ratio until he had 30 of the new card. Then sell those to a dealer for a profit of $37.50. If he's lucky and there's a big event in town this could be done in a matter of six hours.
- He could hold onto them hoping they go up even higher. He makes no immediate profit, but also has to put no time into the process right now.
He has more options than this, but for now we'll stop as the point has been made. Now let's determine his profit-to-effort ratio in dollars per hour.
- P:E ratio is $288/hr (if you only count the 10 minutes it took him to put up all the play sets) but the money takes 15 days before he has it all.
- P:E ratio is $360/hr but his total profit is less.
- P:E ratio is actually negative as he makes no money at first, but he does get to play with his cards.
- P:E ratio is $6.25/hr. His profit is greater than #2 and less than #1 but he gets it all in one day.
- P:E ratio is 0 because he has no profit but has also put in no effort.
Looking at those numbers it seems like #2 is clearly the best option because everyone knows $360/hr is higher than all the rest. However, his total profit is lower for #2 then #1 or #4.
Ultimately you have to determine how you value your own time. I personally enjoy trading with people at big events--except when I get railroaded early and it dampens my mood--and derive a lot of non-profit-related value this way.
Consequently, I would rarely straight up sell to a dealer unless 1) the cards were hard to move, 2) the spread was low enough that I couldn't justify the time spent trading, 3) I needed cash or trade in credit.
Fluctuations in Value
Everyone is keenly aware that card values can fluctuate rapidly. We've seen massive spikes on some cards for virtually unknown reasons as well as steady rises in others over time.
When speculating, it's critical to understand why a card's value has moved.
The good news is card values only have three options: they can go up, down, or stay the same. Let's break down causes for each.
Rise in Value
- The card is brand new and demand for it exceeds supply.
- The card combo's with another card previously unknown.
- The card sees a steady increase in demand with no supply increases.
- The demand for the card suddenly jumps as a new format/deck arises.
- The card becomes unbanned in a format.
- A person or group decides to manipulate the market and create a buyout (creating artificial demand).
- A company decides the card's value is too low and increases their buylist price and selling prices to the point they believe it should be.
Drop in Value
- The card is banned in a format.
- The card is reprinted.
- The card is only played in a deck(s) that have fallen out of favor.
- A better card is printed that surpasses it.
- The format the card is played in dies.
- The card is errata'd and becomes worse.
Value Stays the Same
- The demand for the card is met by the existing supply.
These are the major reasons for fluctuations in card value. (Hopefully all the reasons, but feel free to comment below if you think I missed any.) We can now use logic to determine why we believe a card's value has changed.
Occasionally it can be multiple factors--for example someone sees a hot new deck in action and buys all the cheap copies of a key card. So when looking over price fluctuations it's important to use logic and intuition to determine why the price has changed.
For a bit of fun I'll list a few cards whose prices changed drastically within the past year. It's up to you to guess the reason behind each one.
Now for the reasons.
- Hall of the Bandit Lord -- Someone tried to manipulate the market and created a buyout. Unfortunately, it wasn't grounded on any particular deck or theory and it fizzled. The person may or may not have been unable to unload the cards fast enough to make a profit.
- Horizon Canopy -- Reid Duke's Modern deck won a major event with several Horizon Canopys. A sudden surge in demand caused the card to more than double in value to $35. All in a single weekend.
- Dark Confidant -- He was announced in Modern Masters causing his price to drop immediately by $5-8 dollars, only to bounce back and rocket up to the $75 range (from an initial $50-55).
- Staff of Domination -- It was unbanned in EDH and immediately doubled in price, which it has maintained.
- Force of Will -- SCG tried to push the price of NM copies to $99 hoping that like the fetchlands before it, its price could be jacked up to increase profits. It didn't take with the Legacy community and has since fallen back down to the $65-75 range.
Hopefully that was a fun little exercise. If you kept up with the forums you'd probably have known all of them (so definitely read/participate in the forums).
A Special Note on Reprinting
In a previous article I've looked at how reprints can seriously hurt speculation efforts. The typical price drop from a reprint (in a Standard-legal set) is around 28%, easily turning a solid spec into a profit loss.
There are a few simple questions to ask about a specific card that will help determine its likelihood of reprint.
- Does the card reference a proper name from a particular block or plane? It's far less likely that Avenger of Zendikar will be reprinted in any Standard-legal set, outside of some sort of return to Zendikar. The same can be said of Inquisition of Kozilek (which references a specific character).
- Does the card contain a block- or set-specific mechanic? Terminus (a miracle) and Huntmaster of the Fells (a double-faced card) are unlikely to be reprinted in a Standard-legal set unless WoTC decides to bring back their respective mechanics.
- Is the card too powerful for current Standard? If WoTC believes a card was a design mistake, or if it proved far better in the real world than they anticipated, it is unlikely to be reprinted in Standard for fear of warping the metagame.
Now back to the actual speculating part....
Making Your Profit
It's critical to remember that you haven't made any profit until you've actually sold your target. If you bought a card at 50 cents and it jumps to $1 it's easy to pat yourself on the back for doubling up. But if you can't trade or sell it at $1 you haven't made any actual profit yet.
This is a critical point to get across because as previously mentioned card prices can fluctuate quite drastically. If you're unable to unload a card that went up in a timely manner, it could end up right back at or below its initial point. This is the reason many of us writers tell you to sell into the hype and lock in your profits.
Given SCG Atlanta was this past weekend I thought I'd mention that I always enjoy running into fellow QSers at these events. I try to take time to chat with readers (whether they like or dislike my articles) and it's always interesting to trade with a fellow member as we're both privy to the information provided by this very site and it comes down to your own preferences and intuition.
I did want to offer a personal apology to one QSer who recognized me after our trade (I didn't get his name). I had meant to continue our conversation when someone came up desperately in need of some Jace, Architect of Thoughts and grabbed my attention.
By the time that trade was done he'd left, but hopefully he reads this and knows I really didn't mean to ignore him. Sometimes when you get in the trading mindset you lose track of the rest.