Finally, this project is completed! Nine months managing a portfolio, investing in MTGO.
This week I'll begin a series of a dozen articles dedicated to this portfolio management, its results and the lessons I drew from it.
This project started in August 2013 and, back in those days, several buying opportunities were lining up: M14 mythics, Innistrad block redemption, Modern, and Ravnica block mythics and rares.
I was confident enough in the potential of these targets that I offered some of my friends the opportunity to invest in a portfolio that I would manage for them. Five of my friends were interested in the deal--good friends, current or former Magic players, aware of my interest in the MTGO economy.
The end result of this adventure was overall pretty positive, even if not all of my positions turned out as I anticipated. Some of my positions ended up in the negative, while others outperformed my ideal scenario.
Now, with nine months of history and a chance to consider the final result, many conclusions can be drawn and several lessons can be learned. What went right? What went wrong? What can be modified to make it more profitable in the future? The series of articles I'm starting today will deal with all the factors that have influenced the outcome of this project and will hopefully enhance our next MTGO investments.
The Portfolio Rules
When I proposed this investment to my friends, I specified a couple of rules and promise to be as clear and transparent as possible. Here is what was established:
- The time frame for the investment was clearly defined. This was going to happen between August and April. At the end of April, I give them their money back. For me, this time frame was the best considering the different opportunities I anticipated. After April I wasn't sure how relevant my predictions would be, as I anticipated less activity between Spring and Summer 2014. Most of the action was supposed to take place during these nine months, August and April.
- Every month I was going to give them an Excel spreadsheet summarizing what happened with their money and the different positions I invested in, what I bought and what I sold. This way they were able to follow their investment and my decisions were transparent. To give them an idea of the value of their portfolio every month, I was going to take the value of cards I sold (when it was the case) or an estimation of the value of the cards when they were not yet sold. As an estimate, I would use the average buy/sell price of cards from Goatbots and 90% of the Mtgotraders selling prices when cards where not available with Goatbots.
- All the funds coming from my friends were converted to tix and then pooled together with some of my own the tix. This pool of tix constituted the Initial Investment. According to their share of the Initial Investment, each of us would own a certain percentage of the cards I would buy.
- My plan was to invest about 95% of the Initial Investment right away in the different positions I thought were good back in August, with April in mind as the finish line. I kept about 5% in free tix ready for quick flip opportunities.
- Finally, I proposed my friend two types of return on investment. One type of ROI had a minimum guaranty + a defined percentage of whatever I would make beyond the guarantied %. The other ROI was more of a 50%/50% opportunity in which I guaranteed to return their initial capital if things had turned bad.
Two of my friends, who also play Magic and know me, were reluctant to invest in my deal. Despite my two years experience with the MTGO market and some previous positive track records, and despite guaranties of ROI, they were not confident enough in my abilities, fearing that my previous success was more due to luck than anything else. I completely respected their decisions and offered to send them the monthly report anyway, just appease their curiosity.
This also showed me that even for relatively advanced Magic players (one of them was a recurrent PT player, two years strong), the concept of speculating/investing on MTGO (or paper cards) sounds like gambling.
That was another challenge for me, proving them that I was mastering enough the MTGO market and that luck had no place in my investing strategy.
The first goal of this portfolio management was to acquire some tix--a large amount of tix.
I proposed my friends to hand me the cash and I was going to buy the tix for them. Two of them didn't have an MTGO account, and therefore the decision was a no-brainer for them. Alternatively, they could transfer me with some tix. In the end, three of my friends handed me cash and the two others bought their tix by themselves.
Nonetheless, the two friends who bought their own tix bought them from online stores and got the tix at ~$0.99/tix. I was certainly able to get a better rate. I was buying tix directly at $0.95/tix or buying MTGO collections on eBay. This last option turned out very profitable. Using the process described in my previous article here, I was able to transform newly acquired collection into tix at an incredible rate.
Overall, with about $2000, I was able to buy tix at an average cost of $0.90/tix.
Considering that this project would have a beginning and an end, the price the tix were bought and sold at was going to matter a little bit. I knew I would be able to sell the tix after the nine months for about $0.95/tix. Thus, getting tix at a rate of $0.90/tix already represented a 5.5% profit, and, at the opposite end, there was a handicap for acquiring them at ~$0.99/tix.
The Primary Portfolio
The initial investment started with 5133 tix. 95% of these tix were invested in 67 different cards and constituted the Primary Portfolio. All 67 cards were bought during the first month, in August.
235 tix were kept available for quick flips and very short term investments. As I suggest in my previous articles, setting aside some liquid tix allows for the opportunity to profit from sudden spikes and hype. The goal was to use spoilers season, GP and PT results to grab few extra tix throughout these nine months.
Here are the initial 67 cards purchased back in August:
Here is the link to the Excel sheet, with all the quantities and prices I started with.
My initial plan was to try to invest, whenever possible, about the equivalent amount in tix in each card, and to follow the “5% rule” (no more than 250 tix invested in a single position). In practice, things went slightly different. None of my position represented more than 2% of the portfolio. Part of it was because I wanted to diversify, part of it was because buying 250 tix of a 0.5 tix junk mythic is extremely time consuming and almost impossible unless you buy at unreasonable prices.
My limit per position was pretty much defined by what I could acquire of the M14 mythics, about 100-120 tix. I was strict with this "equal amount of tix" rule for the experiment I wanted to conduct with the M14 mythics. I bought about 120 tix of all of the fifteen M14 mythics, of which the lessons I will dedicate to a future article.
As you can see in the Excel spreadsheet, the quantity invested in the other positions were quiet variable. For some cards, if it was in the 50-80 range, I only invested a couple of tix. Either I didn't have time to buy 100 tix of each card or the prices were moving out of the comfort zone I was okay to buy within. I only bought 24 copies of Reveillark and a ridiculous 6 copies of Reap Intellect. Nonethless, I recorded everything.
Why these cards in particular and why buying them all in August?
Based on the price history of previous years, the release of the Core set seemed to me to be one of the best opportunities to buy M14 mythics, Ravnica block cards and some MMA reprints. I was expecting to generate profit on most of my picks once April came about. I knew that not all of them would be winners, but with so many positions I expected to end up in the positive.
As you will see next week, most of these positions generated profits in the end, but a fair percentage of them were disappointing. Among these loser positions, some were my fault as I was not able to pull the trigger when the time came. Others plunged continuously during these nine months, with no events to put them under the spotlight--and I was expecting some positions to do just that.
Category by category, I will discuss and comment on these picks in articles to follow, and I look forward to exploring what could have been done differently in order to increase my ROI and cut losses.
The Secondary Portfolio
This is something I hadn't initially planned . In the beginning, my strategy was pretty straight and simple: buy in August, and sell most, if not all, of the cards between January and April according to their performance. Even though I anticipated most of my positions peak this Winter, I knew that some cards would see their price increase earlier, between September and December. This shouldn't be a problem, since the overall value of my portfolio was suppose to be higher in January-April.
However, when several cards saw their prices triple after a month or two, I had to revise my strategy and cash in the profits. A big part of this phenomenon I had not anticipated was the Standard Pro Tour being earlier in the season this year, in October. Due to that chance, Standard, particularly M14 cards, moved quicker than I thought, and not selling when one of your positions has tripled in two months seems unreasonable, especially since I knew other opportunities were just ahead.
Since I sold some of the positions from the primary portfolio earlier than January, I decided to reinvest part of these tix in a Secondary Portfolio.
As early as October I started to sell the cards that had experienced a huge rise, as well as some I was convinced had no positive outcome through April. In Fall, ISD block cards and some Modern positions were becoming pretty attractive, so I decided to reinvest 66% of the tix available from my first sales. The other 33% were kept to secure some gains.
As months passed, I kept selling cards from the primary portfolio, with 66% of the proceeds re-routed to the Secondary Portfolio, which kept growing until February when I decided to not invest anymore in the Secondary Portfolio, the finish line being too close.
Here are the 85 positions of the Secondary Portfolio:
The Excel sheet is here for the details about the quantities and buying prices. With the month by month Excel sheet I'll provide next week, you'll be able to see the progression of all of these secondary positions. A vast majority of them ended up positive. Once again, Modern cards showed their speculative potential: highly predictable and a quick return on investment.
The Top 3 Losers
Without giving you more details for now (I'm saving all the numbers for next week), let me introduce you to my Top 3 Loser positions after nine months.
Interestingly, the Top 3 Losers is quiet representative of what went wrong with my portfolio during these nine months.
Varolz, the Scar-Striped is the biggest loser. I sold the copies I had acquired in August at the end of April, with a staggering 87 % loss of value. Varolz didn't do anything at all. I thought this guy had some potential and I probably overpaid on it. Along his slow decent to a junk rare status, Varolz did experience a rebound in November, when I should have gotten rid of it. I didn't, waiting for a miracle that never came.
Loxodon Smiter. Surprised to find such a card in the 2nd position of the Top losers? Well, the timing was good when I bought this card, but my selling timing was rather awful. I should have sold him around the release of Theros, but I kept the elephant anticipating an even better time to sell that never came. This perfectly illustrates the result of having a Standard PT at different time (in October), as compared to the previous year when it was in February.
Duskmantle Seer is the typical example that past successes and high expectations don't guaranty anything. The Vampire almost doubled a little bit before Dragon's Maze released, when he got incorporated into a few decks. Being back to a fairly stable and confortable 3.5 tix bottom for a mythic, this card seemed like a good position for the future Standard. Theros and Born of the Gods didn't bring anything to toy with the seer, so it dropped to a miserable 1 tix, when I finally sold it.
The Top 3 Winners
Now, let's take a look at my Top 3 Winners.
Number one, head and shoulders above the 2nd and the 3rd, is Knight of the Reliquary from the secondary portfolio. I had bought this lady in November due to a very low price compared to what it could offer in the Modern season, even with Deathrite Shaman around. The ban of black and green Elf gave the Knight an incredible boost. With a price that had quintupled in a matter of days, the occasion was too good to pass, so I sold my copies of Knight of the Reliquary into the hype.
Burning-Tree Shaman won an unexpected second place. Another great story of Modern price swings. The Shaman got a huge price boost when some copies found their way into some Modern decks and jumped from 0 to 2.5 tix. The dust settled down and the price of the Shaman settled down to 0.1 tix last Fall, a great buying opportunity. As you can see in the Excel sheet, I only bought an anemic fifteen copies. I don't remember exactly why I bought so few copies of this guy...
Chandra's Phoenix is a great example of what happens when a previous powerhouse is being reprinted: its price starts really low before people realizes that 1) the card is actually still really good and is going to be played and 2) its price is ridiculously low for what it should be. Considering that mono red is always a deck at some point, and that the M12 Phoenix toped out at 5 tix when is was Standard legal, I saw here a great opportunity in the very alluring 0.4 tix buying price.
These are the Top 3 "percenters" and not the Top 3 "gainers". It underlines the fact that it is important to try do dedicate the same amount of tix for each of your positions whenever possible, which I didn't really do here for Burning-Tree Shaman and Knight of the Reliquary. You never know which one of your position is going to explode. A loser position can only let you down by 100% of its value at most. On the contrary, a winner has virtually no limits, and you never know which card is going to be affected by an extra 400% boost.
The Top 3 Tix Makers
When looking at the "real" winners, the positions which significantly contributed to grow my bankroll, the order is slightly different. Generating a 400% profit on a pile of junk rares you bought for 5 tix is nice, but it becomes almost useless when your bankroll is several thousands tix big. Here are the positions that truly generated tix and really helped to grow this portfolio. Here are my Top 3 tix makers after nine months.
1) Chandra, Pyromaster. This Planeswalker finished with a generous +285.6% and generated me more than 330 tix in profits. I sold it after the PT Theros when, to me, the card didn't deliver all its promises. The "Red Jace" never recovered from its highest in October. Definitely the best move of this portfolio.
2) Mutavault. +193.6%. We knew back August that this man-land had some potential. The first tournament results with Theros revealed a rather mono-colored oriented metagame where all decks, including UW control decks, were playing several copies of Mutavault. This land kept rising and actually became the most valuable card in M14, establishing a record high for a non-mythic card in the mythic era. I sold my copies maybe a little bit too early, but it was hard to imagine it could reach 30 tix!
3) Chandra's Phoenix. If I had bought more copies of this bird, it would have been the top gainer, but, as I will discuss in future articles, it's not an easy task to buy AND sell more than 100 copies of a card if you don't want to sacrifice your profit.
Here is an overview of the topics generated from this experience I'm going to explore in the coming weeks.
- The article next week will provide and discuss the raw data from this portfolio management. This will help to have a better overall understanding of what happened to the tix I invested in these 150 positions.
- The M14 mythics. If you have looked at the Excel spread sheet, you have noticed that I bought an almost equal quantity of all the 15 mythics. Are the mythics an investment you can't lose? Betting on all the fifteen M14 mythics at the same time was a way to experiment with this idea. How did it go for me? Answer pretty soon.
- I'll talk about Moderns positions, the never-ending winners.
- Opportunity cost. Retrospectively, this appeared to me as incredibly true and should really be a part of your reasoning when you buy, sell or decide to hold a position. Why did I hold on cards like Varolz, the Scar-Striped when Modern opportunities were all over the place?
- Standard sets during their second year--are they really worthwhile your time and your tix?
- Rotating out of Standard sets. Betting on cards that have Modern or Legacy applications can be very profitable. Enjoy the sale in October and ride the wave!
Thank you for reading! See you next week for a lot of graphs, curves and numbers.