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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.
15 thoughts on “Insider: Speculating 201”
“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.” – One Smart Guy
This is so true. There are so many challenges with actually moving profitable cards, that one shouldn’t consider themselves profitable until they actually have more cash in their account than what they started with. And don’t forget to pay your eBay fees and withdraw money to cover shipping costs before talking about your “net sales”. These shouldn’t count!
Great article – price:effort can be your greatest ally when making sell decisions but also your greatest nightmare if you waste hours trying to move $5 worth of cards.
Yep. I had to really highlight that when I had some guys going through my “bulk” boxes and pulled out some 50 cent cards and they wondered why these were bulk…I explained that the amount of time it would take me to go through the box every couple of weeks to pull out the slightly above bulk wasn’t worth the time to me. Besides, if you don’t have “gems” in your box people stop wanting to go through it.
We call this “the myth of making profits.” And it must have been a really smart guy who came up with that 😉
Nice article as always!
My goodness, this article and the one from Sigmund yesterday should be amongst the first few everyone, interested in finance reads. The concepts and applications are relevant to almost everything that involves dollars and cents.
I don’t speculate much on cards, but articles like these and the forums make my monthly subscription fee worth it.
Thanks. I always appreciate feedback (especially positive). It’s actually difficult to write these sometimes, as I often feel (not sure if other writers feel the same) that we “owe” the readers ideas that will directly generate money for them (i.e. hot spec targets) because they (the readers) are paying the site for access to the insider articles and the forums. But I’ve found that just because people got the “hot spec target” they often aren’t sure what to do with them (hence this article).
I agree, there’s a kind of internal pressure to justify paid for material when one writes, I want to provide value in terms of speculative picks! However, I’m often surprised at which articles receive positive feedback and which ones pass by like a tumble weed. So, given that I am bad judge about which articles I write that are worthy of positive feedback, I try to focus on ideas that are interesting to me and explore those.
I see your unlocked reddit article is getting rave reviews on the mtgfinance subreddit. Keep up the good work! =)
There’s a very solid core of great writers on QS, including you Mr Lewis.
I read every article on QS, insider and free and there are honestly very few articles that I finish reading and I feel disappointed with.
As you’ve mentioned, it’s difficult to forecast which articles provide ‘value’. How do you measure value anyway? In terms of page views, positive comments, amount of social shares or potential money made from spec advice?
I work in an entirely different industry but our writers are given two requirements – surprise the readers with something that may not have known and give them something that they can action easily.
A significant proportion of QS articles meet that criteria IMO. I recommend QS to every Sydney MTG trader I meet.
It’s all about a balance. But in reality, I try to tailor the focus of my articles depending on what I’m actually doing during a given season. Six months ago I wouldn’t shut up about Shock Lands and Supreme Verdict for example. Now these are on the rise – I can’t advocate acquiring these as much here. So naturally I shift focus to selling.
But when I start to get heat in the forums for selling and I observe people’s over-bullishness, the need for conceptual articles like David’s and mine this week becomes overwhelmingly evident. Glad people are finding these worthwhile! 🙂
Hey David, I was the trader you mentioned recognizing you. I actually felt kind of rude heading out without the introduction, but you seemed to be putting in some work and I vaguely recall it being close to round announcements for the open anyway. So belatedly, my name is Kevin and it was good to meet you. 😛
The article, like many on here from the whole QS community, brings up excellent points. I always have to make a mental note to come back and check these basic points so I don’t lose track of the actual profit-making routes as opposed to feeling like I doubled up on pretend money.
Thanks again for your time at the show, hope to run into more of the QS community in person in the future. 😀
Thanks for responding. I certainly didn’t think you were being rude (as I mentioned I thought I was). It was nice to meet you and talk (for the little time we did get to) and I look forward to many future trades.
Have to nitpick you about Hall of the Bandit lord. That card went up because of EDH demand. Yeah it might have been bought out by 1 buyer, but if there wasn’t demand for it, the price wouldn’t sustain. And its basically the same price now as it was 2 weeks after the spike, which is 4x its price before the spike. Just thought that was important to mention, because it seems like a lot of speculators blow off casual cards but a lot of them are money makers. Look at shared animosity, deserted temple, coalition relic (that one hasn’t held its price gain as much, but i still made like $300 on them after they spiked)
It’s not a nitpick if it’s accurate. I was under the full impression that it was someone trying to manipulate the market. After reviewing the MTG stock page on Hall, I still think it was one that was manipulated (there was no sudden spike in demand in 1-2 days), however, like Digeridoo, I think the market has floated the price upward because of perceived demand, rather than actual demand. The card may go for it’s higher price now, but I’m curious how many people are actively seeking them or if the price will eventually trickle back down to it’s original price. The same concept is often seen with gasoline prices. War/Instability erupts in the middle east and the gas price can jump 50 cents in a night…and then slowly trickle back down if supply isn’t interrupted (by said War/Instability). It’s not as though long term demand for gasoline suddenly increased by 10% overnight, but people get worried they won’t be able to get any and buy accordingly..they then realize their irrationality and the price drops to a more stable price.
start with buylist pricing, with buylist targets and this is much easier. you know you’ve a place to unload your large specs. it does mean giving up some targets, but tcg is still returning prices below buylist…
Loved this article because it’s so relevant for me. As with most QS folk, I keep a fairly detailed spreadsheet of my specs. In the last 3 months, I noted almost 90% of my sales have been to my local LGS buylist strictly because of the Price:Effort ratio.
Everyone has their own set of circumstances but mine have made LGS buylisting the default out. I have a new kid and a new job so I don’t have time to hit the trading floor while international shipping costs and shipping time to Australia further erode my selling options.
Also really enjoyed the quiz. Without having access to the QS forum, I wouldn’t have known why four of those five spiked, plus I didn’t know the story behind Staff of Domination at all.
Thanks for the feedback. I tend to trade in with my LGS a lot..as they do 90% credit for a lot of my speculation targets..I usually sell on ebay because it’s easy enough and I haven’t had too many bad experiences.