Insider: [MTGO] Nine Months of Portfolio Management – Opportunity Cost & Opportunity Benefit

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Opportunity cost is a common term in economy, and it does apply well for our MTG and MTGO investments as well. Recently, David Schumann discussed this concept in his article.

Opportunity cost is frequently summarized as the potential loss you accept (whether you are aware of it or not) by choosing an option A, or an investment A, over an option B.

As David mentioned, this opportunity cost may be explicit or implicit, and might be more or less obvious. More than often, estimating the opportunity cost when taking a position on a specific card is not easy to estimate.

The same concept can also apply when the time to sell has come. Selling too early, too late, or not selling at all also imply opportunity cost. However, the act of selling is going to involve opportunity benefit.

As we'll see here with some examples from my Nine Months Portfolio, both opportunity cost and opportunity benefit can really add up after several months.

The Cost of Opportunity

As I mentioned before, one of the largest mistakes made in this experiment was making all my purchase in the beginning. With the exception of about 5% of the portfolio being dedicated to quick flips, all dice were rolled from the start. With these starting conditions, the only way to make this portfolio grow was with how I would handle the different selling and reinvesting opportunities.

If committing to any position has an inevitable and inherent opportunity cost, as minimal as it is, what you are going to do with this position translates directly in terms of opportunity cost. Whenever you sell a card, your ROI is going to be the primary indicator of your success. It can be positive or negative and is a direct measurement of your performance.

Another factor you may want to take into account is time. Time is going to accentuate--in good or bad--the value of your ROI. A 50% profit is fine. If realized in 48h, that was a great investment. If it took three year, it's not as great, at least in MTGO.

The reverse is also true for a negative ROI. Selling a position with a loss of 60% is never what you are aiming at, but if this happens only one week after you invested in that position, you can at least quickly move on to the next opportunity and reinvest the 40% left. However, if that loss took, let's say, nine months, then you have lost a precious time and you have probably missed several opportunities. The cost of this loss is now certainly greater than the base 60% loss.

Opportunity is not always about winning more. It's frequently about losing less.

Let's take a look a two examples from my portfolio that illustrates this concept well.

Varolz is the biggest loser of this portfolio. Not only has it lost more than 87% of its value when I sold, but it took me all nine months to do so--a real disaster. Take a look at its price variation between August 2013 and May 2014:

Investing in Varolz, the Scar-Striped was questionable, but is was not necessarily more or less absurd that any other card. Two months Theros was released, nothing seemed promising for Varolz, nor after the PT Theros. Selling here, with a 50% loss could have been a solution. I could have reinvested the 50% left in Modern or Innistrad positions. This was the first mistake.

Then, in December, Varolz had risen above my buying price with only fringe appearances in some Zombies Modern decks. This should have been the redemption point for Varolz, an unexpected miracle. There again, I didn't take my chance. With a positive ROI, I could have reinvested these fresh tix in flourishing Modern opportunities. A second mistake with a big opportunity cost here.

Finally, after four more agonizing months, I got rid off Varolz, the Scar-Striped, with a loss of 87.31%. Retrospectively, I lost more than 87.31% here since I reinvested early benefit in Modern and Innistrad positions with a decent success

My final result with Obzedat, Ghost Council properly illustrates the negative combination of greed and lack of attention to price evolution. When mixed together, these two behaviors will make you miss many selling opportunities, and you will inevitably lose money.

With Obzedat, things started off rather great. My buying price--10.3 tix--was rather good, considering the prospective of the legendary spirit. I was expecting to see it at its highest somewhere between January and April, around 20 tix.

Obzedat's price rose steadily until the PT Theros and reached a little more than 18 tix, a 80% profit at this point from my buy in just two months ago. Obzedat didn't finish strong at the Pro Tour.

With this data, I should have sold Obzedat.

I didn't. This was clearly a big mistake. I was being too greedy. I wanted Obzedat to be 20 tix again, and I was blindly focused on my estimated deadline this winter.

After the first missed opportunity to sell, its price dropped to 7 tix in less than a month.

Luckily enough, favored by metagame changes, Obzedat rose again above the 15 tix bar.

At the time, I remember that I wasn't paying full attention to its price trajectory--another mistake. If you are not paying enough attention to your specs, you are going to leave money one the table.

I finally waited until the end of my portfolio limit to sell Obzedat, Ghost Counil with a ridiculous 10% profit, considering the two majors opportunities I passed on. 10% in nine months.

Similarly to Varolz, the Scar-Stripped, I left tix on the table when I decided not to sell when the opportunity was present, losing additional indirect tix by not being able to reinvest elsewhere.

A big advantage on MTGO compared to paper MTG is that transactions are free and instant. With opportunities happening almost everyday, the cost of opportunity is real and amplified on MTGO. Knowing and deciding when to exit and sell a position is a real skill for successful investments on MTGO.

Next let's see how selling a position when the opportunity presents itself, even with just a moderate profit, can generate even more profit down the road.

Opportunity Benefit

The experiment I made with the M14 mythics somehow nullified the notion of opportunity cost at the time of purchase. All fifteen mythics were simultaneously and equally (in terms of tix) bought. Only their outcome and what I would do with them would make a difference.

The goal at the beginning of this experiment was to wait until next winter to sell them with an expected profit. I was also open to early sales if a good selling opportunity presented itself. This selling opportunity was obvious for Chandra, Pyromaster and netted me a nice return in a very short period of time.

Two other mythics had a very similar price trend through PT Theros, then took their own way. Interestingly, despite having a quite identical trajectory initially, my move was different for each of these cards.

I'm talking about Archangel of Thune and Kalonian Hydra.

I had bought my Hydras for 9 tix each and my Archangel for 11.5 tix each. Both had a peak around the PT Theros and had risen by about 50%. Neither showed much during this Pro Tour. I, however, sold my copies of Archangel of Thune at 15 tix and did nothing with my 13 copies of Kalonian Hydra.

Kalonian Hydra didn't stop dropping after that. I sold my copies at the end of the portfolio experiment with a 50% loss--quite a big difference from the opportunity I had when it was +50%.

So what about the Archangel? I took the opportunity from this peak and sold all my copies with a 27% profit--nothing extraordinary at first sight. You may say that I could have waited as I did with the Hydra, in which case I would have been right and gotten a better price. Archangel of Thune reached 22 tix in March.

One may conclude that I, in fact, "lost" 64% of potential profit by selling this position too early, around 70 tix left on the table here with my stack of Archangels.

However, I gained much more than that. Let's take a look at what the benefit opportunity of this sale was.

As mentioned before, part of the benefit acquired earlier with the Primary Portfolio was reinvested in the Secondary Portfolio. Here is what happened with the tix obtained from the Archangels.

The orange line is Archangel of Thune, the green line is Vengevine and the blue line is Craterhoof Behemoth.

  • In 1 I bough Archangel of Thune at 11.5 tix.
  • In 2 I sold it at 15 tix.
  • In 3 I reinvested the tix in Craterhoof Behemoth at 5.5 tix.
  • In 4 I sold it at 16 tix.
  • In 5 I reinvested the tix in Vengevine at 7.5 tix.
  • And in 6 I sold it at 15.5 tix.

What was the benefit of selling my Archangels at 15 tix? Only 3.5 tix? Much more than that.

All the tix generated with my first wave of sales got reinvested in different positions, the Secondary Portfolio. Craterhoof Behemoth was among the cards I bought with the tix collected from cards including Archangel of Thune, and some of the benefit drawn from the behemoth got reinvested in Vengevine.

In the end, all the positions from the Secondary Portfolio yielded an average profit of 89%. So the 11.5 tix put into the Archangel became 15 tix and then 28.3 tix by April--much more than 22 tix if I had waited with the Archangel.

Selling your card when the opportunity is here can have much more benefit than you may think, especially after compounding for several months. The difference of tix generated/lost between Kalonian Hydra and Archangel of Thune goes beyond the simple sale itself.

Opportunity benefit is what can propel your bankroll to the sky in no time. You're not going to jump from a 200% profit spec to another 200% profit spec every two months, but taking advantage of each opportunity you face can have extremely beneficial consequences in the long run.


Thank you for reading.

Sylvain Lehoux

7 thoughts on “Insider: [MTGO] Nine Months of Portfolio Management – Opportunity Cost & Opportunity Benefit

  1. As always you are very insightful. I enjoy reading your portfolio management sections because the knowledge and expertise you bring to magic finance can go way beyond just magic finance and I like how it can be very easily applied to other aspects of life. Thank you!

    1. Thanks for your comments!

      Having done this portfolio experience and now putting data together and writing about also helped realized my mistakes and my good moves. I’m happy to share it and glad if it can help!

  2. Very nice article, Sylvain. Knowing when to exit from a position, whether from a profit or a loss, is a very beneficial skill in MTGO speculation. It goes beyond knowing about individual cards, what decks they go in, and their supply/demand. You have to go to the next level: know about all formats and their respective seasons and popularity, set release schedules, major tournament schedules, rotation, and major events (ie. V4 switch). It is way more complicated because you have to plan ahead year-round for future opportunities and risks.

    1. Thanks for the comments!

      You’re right about the complexity of the MTGO economy. If your want get the most out of it and investing in multiple formats, a lot of parameters get in the mix if you want to optimize your investments.
      Selling when decent profit is made and without waiting for perfection is a great way to secure gains and jump form one opportunity to another.

    1. Hi Mikhail,

      The behemoth, as well as many other mythics from Innistrad Block, and especially from Avacyn Restored (because it’s a third set) was on my radar of potential specs because of its rotation out of Standard.

      After the release of Theros, its price was getting quite low. It could have been lower but after the release of the fall set that’s about the lowest you can go before redemption helps prices go up.

      Combined to that, the print of Nykthos, Shrine to Nyx allowed some Green devotion decks in Modern (Travis Woo helped popularizing the concept).

      Finally, the behemoth is played in Legacy Elves and is a good casual card. These two facts are not the most important for MTGO though.

      The behemoth was among the basket of mythics I bought from Avacyn restored (Bonfire, Temporal Mastery, Entreat the Angels, Griselbrand).

      For all the reason mentioned above Craterhood Behemoth really spiked. Except for Bonfire of the Damned, all the other mythics rose as excepted.

      Ravnica block mythics are not as great as those in the Innistrad Block, and particularly Avacyn Restored, but buying a basket of playable mythics (and also junk mythics actually) is always a good move when rotation occurs.

      In September/October Ravnica block mythics are going to be in my buying list. Domri Rade and Voice of Resurgence will be in for sure.

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