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Insider: [MTGO] Nine Months of Portfolio Management – Investing in Modern

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Continuing this Portfolio Management series, today I'll talk about the most successful categories of my investments, hands down.

Since its creation in 2011, the Modern format has been a very fertile ground for speculators. Prices of Modern playable cards fluctuate in a fairly predictable way and with variations significant enough that it is rather straightforward to generate profit.

Being a diverse and reasonably balanced format makes Modern very enjoyable for players. These same reasons make Modern a great format for speculators as well, with dozens of cards available to speculate on. Finally, as I discussed in one of my articles, any card that breaks through in this format instantly jumps from junk to several tix. Modern is a land of opportunities.

This being said, if you look in detail at my Primary Portfolio, it didn't contain many Modern positions. Initially, the idea of this shared portfolio was set to be easy to follow, with all the buys in August and most of the sells between January and April. Since I wanted to be able to track and report all my transactions for my friends, investing on more volatile Modern cards was not part of my strategy here. The only Modern positions I acquired at the beginning were some good opportunities, considering their buy price, and were expected to be higher by the end of this experience.

As you see in the Secondary Portfolio, and because of early profits, I finally decided to invest more into Modern cards, with a rather large success. Let's review here the investments I made with Modern during these nine months.

Primary and Secondary Portfolios

My Primary Portfolio initially contained only fourteen Modern positions, and, with the exception of Linvala, Keeper of Silence, I invested in Modern cards only moderately. I thought Modern prices would be a good pick up later in the year and would not be as good of an investment in August.

Therefore, in my Primary Porfolio, I mostly picked up MMA reprints that had experienced a significant drop from the height of their original print. Cards such as Gifts UngivenFigure of Destiny and Eternal Witness had a decent upside a the time, so I was confident these could rise enough before the end of these nine months, but that limit regarding my Modern risk.

Since I forced myself to invest all the tix I had in August, Modern was not a priority. This is actually one of the downsides of investing with a strictly defined time frame and with the "obligation" to report all my moves--by doing this I could not really hold on to some tix for later opportunities.

Fortunately cards from the Primary Portfolio such as Mutavault and Chandra, Pyromaster performed well and quick, I reinvested a part of these freshly generated tix into a Secondary Portfolio.

For this reason I was looking for positions that could evolve rapidly and generate profit--even minimally--before April. In October-November, many Modern cards were good pick ups and many Innistrad block cards were at their lowest due to rotation out of Standard.  I did not consider Innistrad block, although Modern playable, as Modern positions for our purpose. I'll talk about them more in details in another article.

Overall, Primary and Secondary Portfolios combined, I invested in 80 Modern cards.

Strategy

The strategy I implemented here for my Modern positions is deceptively simple and efficient. All my investments were based on price swings and history.

Modern card history has been tracked by MTGGoldfish since the creation of the Modern format. Therefore, it's fairly easy to see inspect the potential of any given card.

As mentioned before, trends of Modern cards are cyclical and very predictable. In addition, Modern popularity keeps increasing and cards break new record highs every cycle. The release of MMA doesn't seem to stop this trend, even for expensive cards such as Tarmogoyf or Cryptic Command. With such a speculative environment, profits are almost inevitable, provided your timing on your buys are good enough.

My selection of potential Modern pick ups was based on two graph-based criteria:

  1. Does this card have room for at least 50% growth when compared to its past high? For example, a card with a 15 tix historical high would require a present price of 10 tix or less to be worth looking at it.
  2. Is the current price close to its previous bottom?

If these two criteria are met, there's almost no reason not to buy--announcement of flashback drafts would be one of the very few reasons not to, a B&R list announcement being another one.

Let's take a look at some typical Modern opportunities.

 

Serra Ascendant is one the most regular swingers this past year. The frequency of the variation is incredibly steady--every three months the Ascendant would hit a bottom or a ceiling. By only speculating on Serra Ascendant 1 tix invested in February 2013 in one copy could have been turned into more than 50 tix by buying and selling according the swings. It is for sure an ideal scenario, but it nicely illustrates the potential of Modern speculations.

Note here that the highs are not higher and higher. However. the bottoms are. And it seems like we have reached another bottom just now, at around 3 tix. If the highest depend primarily on demand, bottoms are likely rising because fewer and fewer players are willing to sell their cards in between to peaks. This makes bottoms a little bit easier to predict than highs.

Watch out for M15 spoilers here. With the chance of a reprint, Serra Ascendant would lose almost all its value appearing in the next core set.

While having slower swings than Serra Ascendant, Aven Mindcensor also shows well defined bottoms, making it a perfect pick last fall and whenever it approaches the 2-3 tix range.

Without further reprint--in MMA2, for instance--the next high could reach 10 tix for this uncommon that sees play in several formats. You could consider picking up some copies now, as the profit margin to the Mindcensor's highest is fairly decent.

Pyromancer Ascension is (maybe I should say "was") one of this cards of a particular interest for smaller bankrolls. The bottoms of this red enchantment were extremely low at 0.5 tix or less. With peaks at 2 tix or more, you could easily quadruple your investment in a couple of months. During the Pro Tour last February, Pyromancer Ascension was again dragged into attention, allowing for a new record high at more than 4 tix.

It seems now than the bottom is getting higher for this card, but we should expect highs around 4 tix now--at least as long as no other Storm cards are banned.

Similar cards with very low bottoms and decent potential include Burning-Tree Shaman, Fauna ShamanAd Nauseam and some uncommons and commons like Inquisition of KozilekManamorphose and Tectonic Edge.

Another example is Lotus Cobra. Similarly to other mythics, the evolution of the price trend is slow and doesn't look to be affected by cycles such as those observed for Serra Ascendant. The cobra has a high price tag historically but is out of flavor at the moment. Its bottom at around 5-6 tix seems pretty solid, though.

Cycles for this type of card are not really obvious or consistent, but with a high price memory the upside is to consider. Vengevine had to wait almost a year to reach 20 tix again and is currently bottoming at around 10 tix, so it would be a good pick up if you're looking to invest a lot on a single position.

Results

The overall result with the Modern positions during these nine months is excellent. With 70 positions that yielded a positive return, 8 positions that ended up losing and 2 positions that remained unchanged, Modern was a real source of profits. The average ROI per card was a little bit over 89%, and all Modern positions together yielded 965 tix from the 1584 tix invested--a 60% profit overall.

All the loser positions are likely due to the time limit self imposed for the Portfolio experience. Without a time limit, I'm pretty sure that 95 to 100% of these Modern positions would have ended up positive.

Needless to say, the overall performance of this Portfolio management would have been much lower without these secondary investments on so many Modern cards.

Teachings

Hands down, Modern was my best tix generator. Modern cards fluctuate fast and predictably enough so you have a rather high turnover on your tix while still generating a substantial amount of profits. Buying and selling prices of hundreds of potential targets are easily identifiable, making your job of speculator easier.

A big lesson from this portfolio management experience is that it is generally a bad idea to want to invest all the tix available you have at once. Here, I spent all of these 5100 tix in one month, selecting good as well as bad targets. I was kind of rushing my investment, not thinking enough ahead. Luckily for me I was able to sell some of these primary investments and I was able to reinvest the tix generated into even better positions.

If you decide to start a portfolio tomorrow, no need to rush you purchase. Invest according to your bankroll size and make sure you keep some tix aside for Modern positions, but also for future opportunities that may not be visible today.

In the light of my global results presented in a previous article, Modern represent the best pool of opportunities on MTGO, and likely in paper MTG as well. It is rare to find better opportunities than Modern cards, and there's opportunities almost at any time of the year, independent of Modern seasons.

As I explain here, speculating based on bottoms and highest is a rather successful strategy. As for any other investments on MTGO, diversifying and buying several Modern cards is your best security against bankruptcy.

What's Next In Modern?

Modern PTQs have been cancelled on MTGO. This doesn't mean that prices won't go up, but it does suggest that we might not see as many record high as the past would suggest.

Regardless of that news, prices keep fluctuating. Recently, flashback drafts have been a new source of "income". They dragged prices of Modern cards down, probably more than they should have, and thus offer us good buying opportunities.

In recent months we had cards such as Fulminator Mage, Phyrexian Metamorph and Scapeshift benefit from these drafts and currently up.




Other cards are still low enough to be a good pick up. For example, Aven Mindcensor, Daybreak Coronet, Wilt-Leaf Liege, Goryo's Vengeance, Through the Breach, Living End, or Vengevine.

Based on their current prices and historical bottoms, dozens of cards have the possibility to be your next tix maker. We have witnessed recently, unexplained dips of card such as Inquisition of Kozilek (which was dipping this weekend) and Dismember. If you can spot them and are fast enough, these are a pure gift. In less than four weeks, Dismember went from 4 tix to 1.6 tix and back to 4 tix. Quite a crazy ride.


Next time I'll talk about rotating out of Standard cards and we'll see that they also constitute safe and profitable opportunities.

Thank you for reading!

Sylvain lehoux

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