Risk Management in Collection Buying: What Can You Do to Minimize Risk?

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Purchasing collections is a great way to get lots of cards, very quickly, and for a very good price. Sometimes the seller will throw in some fun extras, or you might find something unexpected while sorting. Personally, my favorite thing to see when buying collections is assorted storage boxes. Bundles are the most abundant, but seeing all the different styles, construction, and box art is always refreshing. Sometimes ill get some cool dice, an old pre-release box from days of old, some novelty sleeves, or a stack of oversize commanders that I'll never get around to using. Sometimes you'll find a card that holds sentimental value, and you'll the warm fuzzies.

The best thing to see is when you get something you don't expect but always hope for. Cards with unexpected value, or cards you never knew were included. It makes you feel like you are sailing the seven seas, finding hidden treasure in a forgotten cove. This feeling of euphoria is dangerous. Success is a drug, and it's easy to get addicted, and when your expectations are pumped full of gas, you might get burnt.

Why buy a collection?

When discussing risk management, it is important to discuss intent and motivation. The definition of "risk" changes based on your reasoning, intent, and motivation. If you are just looking to pick up some cards to boost your collection, get trades, and get cards for that sick new Scrambleverse deck that you are sure can make Top 8, (hopefully, it goes as well as your Atogatog commander deck did) then the risk is only as much as you are willing to spend, and how much more you are willing to spend if you don't get a full playset of Blacker Lotus's for your silver-bordered homebrew deck.

If you are looking to do so to turn around and sell the cards, then the risk associated is obviously a lot higher, as you must account for the amount fees and shipping costs that will heavily cut into potential profits. If you just want to pick up a bunch of cards on long-term speculation, or on the assumption that those cards will eventually go up, then the risk is lower, but depends heavily on how long you are willing to wait for returns. Let's jump into the individual analysis and mitigation of these risks.

Estimating Value

One of the most important things to look for scouting out a collection is value. Whatever that purpose may be, the way you estimate your value may change, but for today we will go off of financial value. If you are buying a large lot of high-value cards, then it may not be as necessary to be able to quickly guess and add up value. If you can get a list of these cards beforehand, that makes things very easy. However, if you are appraising on-site, without too much prior knowledge, as these deals sometimes are, then it may be necessary to refresh yourself on some prices. I personally will look through TCGplayer for every card priced around $5, all the way up to several hundred dollars.

If you are actively buying collections regularly, it might be a good idea to do this every once in a while, and keep an eye on big swings in price. Some might not have the ability to check prices in this wide of a range often as you might need it, so the next best(or best depending on your situation) option is to try to narrow down the general era of the cards you are purchasing, and look through the cards in that era. Another great idea is to check out oddball cards, promos, foils, and other specialty cards. Once you can get a general idea, you can get an estimate and make an offer.

How much should you pay?

Before purchasing any collection you should ask yourself first, what is the cost of moving the cards you buy, and how fast are you able to move them. With format staples and other commonly played cards, I usually give those the most weight, as I am able to move those the quickest, any other cards I usually hold to a lower value, as the cost of them sitting in storage, and the risk of tying up funds in low-demand assets. Another thing to consider is the cost to move these items.

It can take practice, but try to get an understanding of how much you will be paying in sales tax, shipping fees (especially with cards higher than $25-$50, as TCGplayer will require delivery confirmation), and shipping materials. If you can lower all of these costs to a minimum, you can pay the person you are buying from more, and leave empty-handed less, without cutting as much into your profits. I'll go more into how to reduce these costs as much as possible later on, but let's throw out some numbers to give you a good idea of how much to budget for.

At the high of the spectrum, you may be paying somewhere between $7-$12 dollars for shipping, insurance, delivery confirmation, and shipping supplies. For sales lower than $50 dollars, you can drop that down to below a dollar. Taxes could as high as almost 10%, and TCGplayer will also charge you an additional 15% or so percent as a marketplace fee. This means that with these costs of shipping, you should hold at most around 45% of the market value for cost of sales. That just doesn't work very well. Not much of a margin for error there, so the question becomes now, how low can we get those costs.

Let's take a look at optimized costs, and see how much we can save. Obviously, the taxes and fees stay the same regardless, but lowering the cost of shipping can be a big boost. Using third-party shipping label purchasing, I've seen some get shipping prices down to $3 for tracked, and delivery confirmed shipping. For good measure, round up to $4.50-$5. For shipping materials, I've seen listings on Amazon for 25 packs of bubble mailers for $8-$10, and top loaders can be purchased as well for around $0.20 apiece if you find the right seller, getting price of shipping materials generally down to less than $0.60 an order, even less if you order in bulk quantities.

With these reductions, you can reduce the percentage cost down to at most 30%. With that information, you can offer as much as it takes to make the deal(with good regard for price of course) and leave the difference for profits/reinvestment. A good rule of thumb is to offer about what the stores around you are offering, which in my experience would be somewhere between 40% and 50% of market value, and pay at most 5%-10% more than that.  This allows for you to pay the seller a fair price, and also still leaves some meat on the bone for you. At the end of the day, if you can't get a full picture, never pay for more than what you can see.

Risk Mitigation

When you are buying collections, even when you know exactly what you are buying, is risky. Unknown factors can make or break the success of a deal. If you are buying to flip the cards, this becomes very important. Any unknown damage can immediately change your outcomes, with little hope of recovery. Something I have dealt with a lot is water damage. Imagine you are appraising a collection, and you have hit the gold mine. Hundreds of seemingly near mint cards, all with value enough to make your mother weep. You get home and start entering inventory in, and the realization sets in. The bottom half of every card is warped, and the ink is seeping through the side. It happened on small parts of collections where I was able to just barely break even, and on entire boxes of potentially promising "bulk".

Examining every aspect of seemingly trivial prospects is important. Another thing to know is to not underestimate bulk. There have been dead-end deals where I was looking at substantial losses, but buy listing hundreds of $0.50 cards and selling hidden gems put me over the top. Looking for the path less traveled and thinking outside the box can not only save disastrous deals, but increase profits on good ones.

Know when to fold them

The hardest part of buying collections is knowing when to walk away. Some lots just aren't worth buying. Sometimes they are worth buying. If you can't tell, the safest bet is to walk away. It's hard to do sometimes, as sometimes the people you buy from are people in your community, people you know, or people who are just too nice to walk away from. Sometimes they expect way too much from you, or have unrealistic expectations about what they have on their hands. It's a common sight, some kid inherits a couple boxes of bulk from their parents, or a parent finds their kid's old collection, and all they know about Magic is that it's worth money.

I see postings all the time of 3-ring binders filled with commons and lands from Oath of the Gatewatch, and they'll ask for hundreds of dollars. It breaks my heart to tell those people that all they have is bulk, bulk, and more bulk. Those seem like no-brainers, but the hardest come from when the person does have good stuff, but they want way more than anyone would pay. If your seller won't come to their senses, or it simply isn't worth it, never take the chance, it almost never works out for you, and it sets unrealistic expectations for the laymen.

The best things in life

The best things in life don't come free, and the best deals take work. You may have to drive a couple hours, you may have to get screwed a couple times, and you may lose a lot of your personal time. If you want to make money, that's easy. If you want to truly succeed, you have to work night and day, sacrifices may be made, and then you may truly achieve what you seek to achieve. As always, have a great week, be smart, and invest in cardboard.

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