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Insider: Do I Leave the Last 10% to the Next Guy?

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Standard is more or less settled for the moment right now. There’s not a ton of financial opportunity since Pack Rat and Underworld Connections hit (glad I called both of those, in particular Connections back the week before the Theros release).

Now it's time to take our profits on those cards, if you haven’t already. Time to get paid!

Or is it?

This question, which we've been discussing recently in the forums, isn't answered as easily as you might think. If you haven’t read the entire thread, I suggest taking a few minutes to do so; in-depth conversations like this are what make our forums the best medium available for discussing Magic finance.

Kurt brought up some good points in his post, and I want to thank him publicly for posting the topic. His main point is that your entry point into a card shouldn’t matter, and it’s one I absolutely agree with. Still, as the thread evolved a few points came up. I’ll do my best to summarize them here, because I think it’s a conversation worth bringing to everyone’s attention.

  • Your entry point doesn’t matter when you’re selling out of a spec.
  • Should you sell on the way up, or wait for a card to top out in search of maximum profit?
  • Should your goal be to maximize profit or just turn a solid return on speculating?
  • “Leave the last 10 percent to the next guy.”

I want to address these in order and explain them in terms of the Magic finance fundamentals.

Entry Point

“Your entry point doesn’t matter when you’re selling out of a spec.”

I agree 99 percent of the way here. The relevant economic term is “sunk cost.” Basically, once you’ve paid money to acquire the cards that money is sunk because you have no way of getting back your initial investment. Instead, you can only take what the current value of that investment is.

The example that came up consistently was Jace, Architect of Thought. I got into Jaces for about $8-10. I got out between $20 and $25. Here’s the thing. Those numbers are only useful for calculating the ROI (return on investment), which really only serves for record-keeping purposes. The argument is that when making the decision to sell or not sell, the price you paid is irrelevant.

What does everyone think about this? In theory, I agree completely. It doesn’t matter if you overpaid or underpaid for that Jace--if it’s time to sell, it’s time to sell. When I got Jaces I pinpointed $20 as the target price, and when the card hit that mark I began to sell mine. In theory all that matters is that I made X dollars when I sold them, but there’s more to the story than theory.

Let’s be honest. We’re not dealing with huge budgets with expenditures on one side and revenue on the other. The majority of us are investing into a few specs at a time and following those closely. And whether or not it should matter, what we got in at does matter to us. Sure, Jace obviously continued to go up past $20, but I was happy to double up on the card, so I began to out mine when that happened.

Here’s the thing. This isn’t a stock market, where fundamentals stay pretty constant and are constantly factored into a price. This is Magic, where things don’t always behave rationally. Sure, by selling a little early I didn’t completely maximize my profits, but the bottom line is I doubled up, and that feels good.

And, really, that’s my point. Most of us speculate not just for the cash, but from the rush we get doing it. I know Sigmund has talked about the excitement of speculating before, and I think ignoring that is ignoring the reality of the MTG finance market. And in that reality, what we paid absolutely matters.

You should do your best to eliminate your entry point from your decision-making process. If you think a card has topped out, sell it. More importantly, if you think a card is doing nothing but heading down, sell it, even if you’re losing money on that spec. Make that decision without regard for what your entry point was, because a lot of the time holding a card to avoid a loss turns into even greater losses.

But remember why you’re doing this. Very few people get rich speculating on Magic cards. Sure, maybe you think Jace could go to $35 and you’d make more money by holding. But maybe you’re wrong. If you’re happy with the profit you could make by selling now, do it. That’s a decision that requires calculating your entry costs, and because most of us do this as a hobby, I think that’s okay.

Selling at the Peak

“Should you sell on the way up or wait for a card to top out in search of maximum profit?”

This was a contentious point, and again it’s one where the theory doesn’t quite align with reality. In theory, you wait for a card to peak, and as soon as it shows signs of plateauing, you sell, maximizing your profits. But that’s not how this market works. Instead, cards are hot when they’re going up, and much less so once they’ve topped out. This has very real implications.

As several people pointed out, the number of copies you have matters because it takes time to sell that many copies. Gus (who runs a store) posted that it’s much easier to sell 150 Jaces on the way up than wait until they’ve topped out, and I agree.

The key factor here is momentum, or velocity. You want to be the person selling the cards when there is a rush to get them, rather than be trying to sell yours when everyone who bought in on the way up is trying to out their copies. Why?

In this market cards prices can change quickly. When something is on the way up, there’s the “race to the top” effect, where someone lists their copies and they’re sold immediately, setting a higher price point for the next one. Well, in today’s market a lot of those buyers are planning to resell later.

Let’s look this time at Tidebinder Mage, which rose quickly after the Pro Tour. The card’s average on TCGPlayer went from a dollar to $6 at the max. So if we sell ours when the card hits $4 on its way up we’re missing the top point by $2, but selling at this point yields much more consistent results.

When that card does eventually plateau, in this case at $6, we start to see the “race to the bottom” take effect. This is not the time to caught with copies in hand, because with each passing hour that your cards don’t sell you lose money.

When a card is going up, everyone wants to list theirs higher and higher, not lower and lower, which allows you to sell into that hype for a good price. As soon as the hype machine and initial frenzy slows down and the card becomes static, people begin to undercut the market, even if the mid-price is stable at a higher number.

These outliers undercutting the market pull everyone down. As Gus alluded to, it's much harder to sell in this environment than the previous one. The velocity of a card is extremely important in selling.

But what about the cards that spike twice?

This is of course the counterargument to what I outlined. What if after spiking to $5-6, Tidebinder had another great weekend and went up to $10? After all, that certainly happens with some cards, for instance recently with fetchlands.

The fact is that many more cards go the opposite way. For instance, Tidebinder Mage. In Magic Finance, the original spike is, in the majority of cases, the highest that card ever reaches.

If you think this time is the one in 10 that will spike again, then feel free to chase it. The problem is that I've seen far too many people chase that and lose money in the meantime. I'd rather "lose" money on that one spec out of 10 and max out on those other nine than chase that spike on all 10. In my experience, this is the more profitable strategy.

There's another important aspect: buylists. A lot of my selling goes to buylists, or at least did in the past before I started working out of a store. After the Pro Tour, Master of Waves spiked to $20ish. Great. In that first week, dealers are trying to stock up on the card, so they're offering a buylist price of (say) 75%, or $15. We can out at that price and be happy with our money.

Let's say we think the card will go even higher, so we hang onto them (again, Master is just an example; insert whatever card name you want here). Dealers restock after the initial run and put it at $25. Great, you were right.

But that card's price is now more static than it was before because there's no hype and no active run on them. Dealers lower their buy price because they aren't selling as fast, even if they are selling at the new price. Now their buy price is a more typical 55%. That number is $13.75.

And of course we're assuming the card in question is spiking because it's actually a tournament contender. There are many Exquisite Bloods and Hall of the Bandit Lords that will leave you absolutely destroyed if you try to wait for a card to plateau. Dealers may be slow to drop their retail prices on this stuff, but buylists plummet once they know it's going nowhere.

Goals in Speculation

“Should your goal be to maximize profit or just turn a solid return on speculating?”

To me, this is a personal question. I’d much rather make a solid, consistent return on my cards than chase maximum profits. For someone else, maybe you don’t mind losing on some specs by holding too long because you think it’s worth it, and that’s fine too. It all depends on your risk tolerance.

The Last Ten Percent

“Leave the last 10 percent to the next guy.”

This is probably one of my most-repeated adages, in part because I think it is so often a successful formula. Due to the #HypeTrain and the way speculators like us work in this market, Magic finance is chock-full of cards that spike suddenly, sometimes out of nowhere. And the vast majority of the time those spikes do not represent a new baseline price. Instead, they represent impatience on the part of Magic players who need it right now, and prices come down later.

This isn’t always the case. Fetchlands, for instance, only went up more. And the truth is that wasn’t hard to predict. They were played all over, weren’t even possibly a flash in the pan and weren’t getting reprinted soon. In other words, they had the fundamentals to back up the price spike.

To me, these spikes are few and far between, and they’re easy to recognize when they occur. There’s a big difference between Misty Rainforest on one hand, and Aluren or Hall of the Bandit Lord or Didgeridoo on the other.

But “leave the last 10 percent to the next guy” is way easier to sell than “leave the last 10 percent to the next guy, except in this case, or that case, or maybe possibly this case.” Instead, it’s one blanket rule I tout regularly because it regularly is the right course of action.

When something diverges from that, like the spike on Jace, I write about it. I said that I was beginning to unwind my position on Jace but wasn’t in a rush to sell because I thought the new price had some fundamentals behind it. Compare that to something like Scapeshift which exploded overnight when Valakut was unbanned. I sold my copies immediately because there was nothing but hype behind the price change.

And that’s the case more often than not, either because of hype-based spikes or because the card in question is in the current set (looking at you, Master of Waves) and will continue to be opened, increasing supply on the market.

Perception of Value

I completely agree that what you "think" a card is worth should influence when you decide to sell. Jace, for instance, I thought would be $20-25. When the card hit $20 I started selling, though I didn't firesale them (as I mentioned above). So if I think the price could stay or even go higher, why did I sell?

Because even if I "think" a card deserves to be $25 and it only hits $20, there are so many unpredictable factors in this market that I'm going to take the money. I'm not so arrogant to think that I nailed the price perfectly. If I think a card is worth $25 and therefore refuse to sell when it hits $20 and I'm wrong, for the reasons outlined above I'm going to lose more as the card falls than I will gain if it reaches the goal I had in mind.

Say after the initial spike Jace turns out to be trash, even if I don't think it really is. The price hits $20 and I don't sell because I think it's going to be $25. Instead, I'm wrong and it heads the other way and falls a few bucks in a week. Due to the nature of buylists and the "race to the bottom" on TCGPlayer, all of a sudden I'm losing way more due to the retail price falling $5 than I would gain by it rising $5.

But all of this can only be applied after a card nears a target price. You can't look at Jace when it hits $12 and say "well I lose more if it goes down than I gain if it goes up." This is where you have to actually be able to speculate on cards, and compare past precedents to determine a target price.

If I think Jace is seeing enough play to hit $25, based on how similar past cards have performed, I'm going to wait until it at least nears that number, or spikes suddenly. Due to how fast this market moves once it starts to, this point is usually easy to locate. It takes more than just looking at MTGStocks graphs to understand how to properly operate in this market.

Wrapping up

This has been quite a long essay, and I apologize if I rambled a bit, but I want to be clear I’m not here to sell you academically-sound economics theories that will never be wrong. All I can do is share what I’ve learned from my years in the finance game and what’s worked for me.

I don't claim to be an economics expert (I have degrees in journalism, broadcasting and PR, note that none of those are business-related), so all I can do is share the strategies that have made MTG finance such a huge part of my life.

This is certainly not intro-level stuff, but I think whatever side of the discussion you fall on, it’s one worth having. What are your thoughts on the subject?

Thanks for reading,

Corbin Hosler

@Chosler88 on Twitter

6 thoughts on “Insider: Do I Leave the Last 10% to the Next Guy?

  1. This is very well-written. The last 10 percent isn’t something an investor could really take advantage of (because of uncertainties), but instead we just leave it to our customers to potentially brag to their friends how they “got in before it went up”. You make big money by understanding the big trends, e.g. buying Jace six months ago, not by maximizing every tiny bit of profit. The latter often involves risks that are not so apparent initially.

    I guess it’s almost time to start thinking about what the next Jace / Desecration Demon will be next year! It’s still three months too early to buy say Boon Satyrs right now, the set just came out and the prices are still too high. But it’s a good thing to think about and keep watching, especially when Born of the Gods comes out. There were signs that D. Demon was going to be good – with both Undying and Lingering Souls rotating – one of the questions we could ask is, what card in Theros will benefit when the Azorius control core rotates?

  2. The four points you’ve raised can be split into two buckets.

    Lower risk:
    -Enter low
    -selling into hype
    -solid/consistent returns
    -leaving 10% for the next guy

    Higher risk:
    -Entering late
    -selling at the peak
    -maximizing profit
    -not leaving 10%

    The problem with the higher risk tactics is, unless mtgfinance is your day job, most speculators are in this to make a bit of side money and/or finance their hobby. From a time investment perspective it is far easier for me to enter early, exit into hype and forgo some profit. You sell much faster and have more outs plus you can reinvest earlier.

    Let’s be honest, the majority of specs drive $100’s of dollar of profit at most, not thousands or tens of thousands. For that amount of profit, I’m not going to be putting in the extra 10% of effort or wait 10% longer. To the high risk/reward guys, I salute you, but it’s just not what I’m here for 🙂

  3. I generally agree on leaving it to the next guy and have some ideas for how to quantify this if anyone is interested and has a database together, even if it’s only a couple hundred card price histories.

    Fortunately, this isn’t all or nothing. You can incrementally sell into a spike and leave say 20% of position to ride to the end. As you mention, it’s probably also good to sell when the retail rate of change is accelerating but the buylist rate of change is decelerating. There’s also opportunity cost. When something is near the top of its range (and range of best comparisons) you do have some idea of how much “meat on the bone” is left and it’s often easy to find a better risk/reward proposition at that point.

  4. I hadn’t considered one angle, the fact that many people speculate on magic cards as a hobby, and not with the intention of making serious money. I can definitely understand a strategy of looking for small gains if one is speculating for the rush or just for something fun to do. For such a strategy, it’s the number of correct specs, as opposed to the profit per spec, that matters.

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