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Insider: Wall Street Versus MTG Finance

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Not a day passes by when I don’t take a moment to evaluate the price shifts of key cards in my collection. It may seem excessive, but if mtgstocks.com demonstrates one thing, it's that there is always significant movement somewhere in the market. As an MTG Investor with money in these assets, it is my responsibility to educate myself on these price movements.

Friday of last week was no exception. I was browsing eBay Buy it Now listings and TCG Player, as I always do, when I made a revelation. Okay, perhaps “revelation” is too strong of a word. It would be more accurate to say I came up with a musing for myself, and when I thought longer about it I realized there was some truth to the thought.

Naturally in the year 2014 there’s only one correct action when you come up with a thought worth sharing. You Tweet it!

Tweet

Most people know I am heavily involved in both MTG Finance as well as Stock Market investing. Some of my Twitter followers are in the same boat, and naturally some of them had some reacting thoughts to share.

And there were many. Some of the conversations branched off into other debates as well. Here’s a link to some of the conversation, and if you click around I’m sure you’ll find further debate: https://twitter.com/acmtg/status/464857052733374464

Why I Am Right

Now that I've had most of a weekend to consider the above Twitter conversation more fully, I realize my comment swept too broadly and couldn't be 100% accurate. If I add some qualifiers, I believe the statement strengthens in validity. How about this:

“Investing in high-end MTG cards, especially when graded and on the Reserved List, has yielded a better performance than the S&P 500 and will likely continue to outperform in the next few years.”

Now the statement conveys a more precise summary of my line of thought last Friday, which is more defendable with actual data. Where can I find historical MTG price data? Once again my seemingly worthless InQuest Magazine collection comes through and pays dividends!

Lotus and Moxen

These images (forgive the low quality) come from the oldest InQuest issue in my collection: Issue number 5, released in September 1995.

Nearly 19 years ago the Atlanta Braves were just about to win the World Series, America was enraptured by Apollo 13 (though Toy Story was the best seller), The Soup Nazi episode of Seinfeld made everyone laugh, and you could buy a NM Alpha Black Lotus at retail for $350. Moxen retailed for $225, and Ancestral Recall was $140 at retail. I won’t even tell you how cheap NM Alpha Dual Lands were. Okay, fine I’ll tell you: Underground Sea was $40 on the high end and $20 on the low side.

Now that we've digested all of this data, we need to pull some current retail prices and do some math! There is one Alpha Black Lotus in stock on TCG Player – a MP copy for $9500. Star City Games is sold out of these at $9999.99. It’s safe to say a NM copy would retail for more than $10,000 if SCG actually had one in stock, but we’ll use this number to remain as true to the numbers as possible.


At $10,000 retail now, nice condition Alpha Lotuses have appreciated from $350 to $10,000 (2750%) over nineteen years. In the same time period the S&P 500 went from about 580 to 1880 – a 220% gain. While we’re at it, here are the percentage gains for the other cards I cited above:

  • Ancestral Recall: 2400%
  • Mox Sapphire: 1670%
  • Mox Jet: 920%
  • Other Moxen: 780%
  • Underground Sea: 14,900% (!!!!)

In every case, high quality, iconic Magic cards have all outperformed the overall Stock Market by an overwhelming margin. Thus it’s safe to say the historical component of my revised claim should be inarguably true.

Looking Ahead

Magic has absolutely exploded over the last few years. It’s a cultural phenomenon mirrored by no other experience. The concept of collecting, trading, buying, and selling cards that you can also play with was just about unheard of when this game was created. Now Magic: The Gathering is breaking into mainstream with a movie deal! Talk about significant growth!

Will Magic continue to grow at this same rate for another 19 years? Impossible. While we all hope there’s more growth for the game ahead, there’s no way it can repeat the growth from the last 19 years. The larger something becomes, the harder it is to grow meaningfully. Magic will run into this barrier at some point.

In a similar vain, there’s no way NM Alpha Underground Seas can duplicate their performance from the last 19 years. If they did, we would have these pieces of cardboard selling for $900,000! Not going to happen.

Despite the slowing growth, the future will still bring appreciating prices. There is a market for this high end stuff. Back in February someone bought a BGS 9 Alpha Black Lotus on eBay for $11,999.99 (plus $9.99 shipping).

Sold Lotus

This data suggests there are buyers at these prices. Because the player base is aging with the game there are collectors out there with the spare resources to invest in these rarities. The more MTG players are successful in their lives, the more they generate the cash flow needed for such purchases. And of course the rapid appreciation of Legacy and Modern staples has also enabled high-end cards to rise.

A case can certainly be made for the future growth of high end, Reserved List cards.

Why I am Wrong

My statement glosses over one drawback, which is why I cannot truly recommend such a strategy to the community: RISK.

MTG Finance is akin to the Wild West. It almost reminds me of the gold rush--a few individuals discover the profits that can be made from Magic, and now you have many more looking for a portion of the profits. There is little in terms of regulation, allowing for market manipulation, counterfeits, and misinformation strategies to take form.

What profoundly concerns me most is Hasbro’s control over the situation. They completely control the faucet of this market. If they wish to print more copies of a card they can do so. We rely on the ramifications of the broader market to keep Hasbro in check, but this is not your typical shareholder-company relationship. Hasbro’s interests are in their bottom line so they can return value to their shareholders. The shareholders are the ones ultimately holding companies accountable.

There is no such accountability when it comes to the consumers of a company’s products. If there was, then prices would never increase on a bottle of Coke. Who would want to pay more for the same product? Yet prices inevitably increase to drive profit growth and reward shareholders for their loyalty. Thus, I would argue Hasbro is not as heavily focused on the MTG Speculator/Investor as they are on the shareholder.

The possible implications of this conclusion spread a wide array of possibilities. As of today, there is sufficient overlap between the shareholder and the MTG investor so a symbiotic relationship is established. Magic investors are happy with the game’s growth much like Hasbro is, so they are confident that their Vintage and Legacy staples are likely to appreciate further.

If one day the strategies of Hasbro shifts, this could no longer be the case. It seems impossible that such a shift in goals could occur because we are so focused on our own paradigms. We believe the recent growth of MTG is terrific for everybody so why change it?

What we have to remember is that companies have many factors in motion at once when they prioritize strategies. Magic is just one segment of a broader company, and changes in priorities can happen at any time and without forewarning.

Lastly, there are no government regulations mandating MTG Speculators follow certain rules when it comes to MTG Finance. If a well-networked individual wanted to manipulate the market they could do so. Incomplete information leads to players getting ripped off all the time (though at least smart phones have limited this). Just like the Wild West, there are few rules that govern MTG Finance. This lack of rules makes me most uncomfortable with the idea of major MTG Investments.

Wrapping It Up

At the end of the day it comes down to a risk tolerance decision. Magic presents opportunity for excellent financial gain, but that comes with a risk. When I purchase shares of Coca-Cola, I know I’m buying a portion of the company’s ever-reliable profits. This comes with sustainability and accountability (after all, shareholders to get a vote in major company decisions).

When I buy a piece of Power I am banking on the growth of a game. I am given no voting rights and I have no way of holding Hasbro accountable for their actions. This gives me great discomfort, so I invest only a fixed amount of resources in the game of Magic. Just because MTG offered unmatchable yields over the past two decades cannot guarantee such growth in the years to come.

Thus I conclude I must remain mostly focused on Wall Street, with only a fractional eye on MTG Finance. While I enjoy the game of Magic much more than digital shares of a company, a conservative growth target with the right risk balance is best for my family at this time. Of course everyone’s risk tolerance differs, and you may conclude the exact opposite.

Sigbits – Sold Out!

  • Star City Games has exactly two Black Lotuses in stock. Both are graded copies. This is consistent with the buzz in the forums that someone has been buying up lots of Power.
  • Star City Games also has only graded black bordered Moxen in stock. They have exactly 12 Unlimited Moxen in stock across all five versions.
  • Star City Games also remains out of stock on Bazaar of Baghdad, though I did notice they have other Vintage staples like Mana Drain, Time Walk and Mishra's Workshop in stock.

13 thoughts on “Insider: Wall Street Versus MTG Finance

  1. Legacy/Vintage cards saw a sudden spike in about ’04-’05, remained fairly stagnant until recently and now seem to be going through another period of spiking. I wonder if this could be a periodical event. Though the next cycle seems to be far off it might be worth considering if it is and remember it for the future when it seems to come again. If the ’04-’05 spike has anything to teach us it’s that the cards never come down again.

    (Like the last time, now that I am sort of getting close to being able to afford the more high end Vintage cards they shoot up again :(. I did manage to obtain a few more this cycle, but it again feels like Power is getting far too expensive relative to my budget).

    1. “Legacy/Vintage cards saw a sudden spike in about ’04-’05, remained fairly stagnant until recently”

      I think your chronology is off…Legacy took a little while to gain traction, and it certainly wasn’t spiking in 2004-2005. I think you’re thinking of the 2010-ish spike, when SCG started their Legacy Opens.

      1. QED’s correct on the Legacy spike being 2010ish. I remember trading in a Dark Depths (when the Thepths deck took off) and 9 bulk rares for a pristine Tropical Island (worth $45). But this makes perfect sense…the REASON for the legacy spike, was SCG’s Legacy Opens. After all, very few people played anything but standard/casual before then as there weren’t events to warrant building a deck/playtesting for. SCG created the demand AND also had a large supply of staples..

      2. Late 2003 I trade away a workshop at the then going rate of 70 euro, time period confirmed by the person I traded with reffing me at that point. Not long after Vintage staples like Shop saw a jump, it went to about 150-200. Like it Bazaar, Mask, Power and also a few cards that are Legacy legal saw jumps (this is when Moat and Tabernacle first started showing some movement). The only reason I included Legacy was because some would call those cards Legacy cards now, back then we wouldn’t have: at the time it was perceived as a Vintage / Type 1 spike.

        I’m not arguing that there was a later Legacy spike in 2010, but that’s not the one I was referring to.

        1. I should clarify now that I reread my original statement once again: I understand the confusion. My thoughts were on Vintage cards, however as some would now be considered Legacy cards I added that too as I felt people would comment a Moat went up due to Legacy (I also took out the card names anyway). I kept thinking about it as Type 1/Vintage cards for the rest of my post, so “fairly stagnant” was referring to the Vintage part, indeed the Legacy part did not remain quite as stagnant in 2010. Also stagnant is probably not the best word to use here: they did rise, just not explosively until now. I should have probably rewritten that sentence.

          Imagine it just says Vintage and move on, the point holds regardless: is there a cyclical increase in Vintage card prices? If so, what can we learn today that we can apply next time around?

          In other news, completed my Bazaar playset yesterday :). 3 more Shops and I’ve got the pillars covered, after which I intend (-ed *sigh*) to move on to completing a set of Power.

    2. Whether the jumps in high end staples occur continuously or not, their prices are still monotonically increasing either way. Hence why the investments have been so strong over the last 2 decades. Time will tell if history will repeat itself over the next 2 decades, but I don’t have the courage to go all in on investments in high quality Power/Vintage simply due to the factors I listed above.

      1. Well, realizing the same is happening as about 10 years ago I did go pretty deep (by my standards) on Duals. In a similar vein I have decided to complete my Bazaar of Baghdad playset later today, it may be my last chance at less than 300 euro (buying a supposedly NM copy for 235 euro). When this comes again some time in the future I will probably again go deep on some cards I perceive as good targets and will try to complete some playsets. I’m not suggesting to stock up now in preparation of a spike 10 years from now.

  2. As far as data to support your point about power: A month ago there was a BGS 7 and BGS 9 Alpha Lotus on ABU Games. Both have vanished, including the Lotus for 13k. Also their high-graded Alpha Moxen have dried up as well.

    1. Thanks for the additional data. Graded black bordered power is selling very quickly now, and ungraded BB power is tough to find as well. Look at SCG’s stock on A/B Power – other than a few graded copies they have about 0. This is the largest MTG Store on the planet and you can count their BB power on your fingers. These are drying up.

  3. Would be great to use Net Present Value calculations to figure out the average annual Rate of Return on the Vintage cards you listed, so that true comparison to the stock market average of about 8%/annum can be achieved.

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