Feature Article – In Response: Money For Nothing

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Tuesday, May 11th – I was privileged enough to be able to speak with Doug Linn about his most recent article on Legacy speculation before it went live, and we found a few areas where we disagreed. Considering my main body of work deals with speculating on cards and adding value to your collection by buying, trading and selling in the most informed and efficient way possible, I’m glad to have the opportunity to weigh in on the subject.

This article is written in response to columnist Doug Linn‘s “Money for Nothing” article, published at StarCityGames.com on 5/3/10. Doug and I discussed a few of his points before publication, and as he solicited my opinion and feedback on the matter, we discovered a few points on which we disagreed. The opinions expressed here are simply another way of thinking about and seeing the game of speculating on cards, and are in no way meant to take away from Doug’s suggestions.

Hey everyone, I’m Kelly Reid, the editor of QuietSpeculation.com , which is a Magic blog that focuses on the finances of Magic the Gathering. I also recently opened a brick and mortar shop specializing in MTG near Purdue University in Lafayette, Indiana. I was privileged enough to be able to speak with Doug Linn about his most recent article on Legacy speculation before it went live, and we found a few areas where we disagreed. Considering my main body of work deals with speculating on cards and adding value to your collection by buying, trading and selling in the most informed and efficient way possible, I’m glad to have the opportunity to weigh in on the subject.

The first thing I want to clarify is that the majority of Doug’s article was spot-on. Most of his advice was great, and it is rare to find someone who knows more about Legacy than he does, especially someone with the level of ‘trading savvy’ he brings to the table. His suggestions are, for the most part, accurate and his case studies provided great examples of the points made. That said, let’s jump right into the points on which we disagree.

A common misconception amongst people who discuss finance and speculation, as it relates to Magic the Gathering, is that the strategy for casual traders differs greatly from the methods of larger, more established traders. Clearly, if buying and selling Magic cards is one’s main source of income, the game changes somewhat, but until an actual cash profit becomes your sole target, the strategies employed are actually very similar.

See, the main point where Doug and I disagreed relates to how a “casual” trader should think about his or her gains. Doug suggested analyzing your trades in terms of dollar value, while I am confident that they should be analyzed as percentages. It has been shown time and time again that what one measures, one improves. If you start keeping meticulous track of your food intake and your exercise regimen, you will begin to be more mindful of your choices, and thus make better choices. If you focus on your personal finances, down to the cent, you will naturally make better, more responsible choices with your money, as you will automatically be held accountable for your decisions. Suddenly, blowing $300 on a new video game console seems a lot less fun. The same is true when you begin to measure your trade binder as a growing portfolio, just like an investor would measure a stock portfolio.

Doug’s main point in our discussion was that on paper, a 100% profit looks fabulous, but in reality, if the initial investment was $1.00, then your realized gain was also only $1.00. He correctly compared this to the time spent to make the deal, but this is where the argument lost some ground in my book. Let’s assume for the moment that the card(s) in question can really be sold for $1 and $2, respectively, or at least traded at those values with regularity. The main problem with this logic is that you are assigning a value to your time. In most cases, especially if you are employed, a student, or just a busy person, your time does have value. However, when you are at an event like a PTQ, a StarCityGames.com Open Weekend, or a Grand Prix, your time is already spent. Doug approached the issue from a lone trader at home, buying and selling online, but the truth of the matter is that most of the best trading is done at events. Go to an Open weekend if you don’t believe me. Even an experienced trader like myself gets goosebumps at the prospect of trading with almost 700 Magic players in the same room. Seriously, get to one if you are within 15,000 miles!

The comparison to an hourly wage, for example, is unfair because you are already investing your time by being at an event. You should take the 2:1 trade every single time, since if repeated to infinity, the trade would always earn you money. While there are fees and effort involved in selling online, no such friction exists when trading in person. A 100% gain is a 100% gain, no matter how small the realized profit may be. The next trade might get you 100% on a $2.00 card, and perhaps the next trade after that gets you 100% on a $4.00 card. This compounds quickly.

The simplest way to explain this, to any who are not convinced, is to just imagine that the $2.00 card is two copies of the $1.00 card. You’d surely trade a copy of Card A for two copies of Card A, right? Why not trade a copy of Card A for a copy of Card B, then turn around and re-acquire Card A and then some? That’s the crux of value-trading, and by imagining trades in terms of “absolute” value rather than relational value, the meaning and significance of value trading is quickly muddled in subjective concepts like “a lot” and “a little.”

The other point where I disagree vehemently is that speculating cannot make you a lot of money. I will be the first to admit that unless you’re a wild genius and something of a shark, you probably won’t make your fortune slinging cardboard, though it is certainly possible. While you may never realize a direct profit from your trading endeavors, the money saved is as good as money earned. What did your mother most likely tell you when you were younger? When you asked her for your allowance so you could buy a booster pack of those evil, horrible Magic Cards? “A penny saved is a penny earned.” Well, here’s your chance to make Mom proud. By making small value trades and understanding your gains in terms of their relationship to the amount spent, you will quickly begin to see how a penny saved is truly as good as a penny earned.

Again, you may not retire to the Caribbean each weekend on your Gulfstream IV, drinking top-shelf Cognac and lighting your Cuban cigars with Beta Duals. Regardless, you might save enough building one deck to put together another. Or you might save enough by savvy trading that you can afford to have a nice dinner at a restaurant, because you didn’t need to spend that money filling out your deck. The point is, the system never changes, and to get caught up in the “it’s only a dollar” mentality is to squander money needlessly.

What would you do with an extra $300? You could purchase a playset of Jace, the Mind Sculptor from StarCityGames.com and still have enough to grab a burger for lunch! You could buy almost all of Jund, drive to a PTQ, and pay your entrance fee. You could probably even buy my love. The point is, if you said “Why bother, it’s only a dollar?” once a day for a year, you’d have more than $300, and that’s precisely what you’re doing every single time you think about your cards’ values as absolutes rather than as relationships.

The last place where I want to respectfully disagree with my esteemed colleague is in his discussion of bankroll management, to continue his poker analogy. He suggests the arbitrary number of $100 as the “right” amount to speculate with, but I find that this number must be more fluid. I was never too good at poker, but I was always cognizant to mind my Ps and Qs when I played. One of the things I learned right off the bat was that there was a very well established way to manage one’s bankroll in Poker. To avoid going “bust-o” due to the natural variance of the game, it was imperative to cap your risk in any given hand by simply limiting the buy-in amount of the table you play at. I’m sure the poker fiends could elaborate on this ad nauseam, but the same basic principle applies in speculating on Magic cards.

Speculation is, well, speculative. There is no guarantee that the cards you think will appreciate in value will cooperate with your opinions. I do this for a living, and I make a lot of mistakes. You should assume you will, too. Thus, you must get an idea of what your trade stock is worth, approximately, and also factor in how much cash you spend on Magic each month. This way, you can have a rough dollar amount in your head.

The next step, once you’ve got that dollar amount, is to figure out what 20% of that is. That’s the most I’d suggest putting into speculative cards, at least at first. As you find your way, you can modify that number, but for those starting out, 20% should be your ceiling. This means that even if every card you buy gets banned, rotates out, or gets totally hosed by a new card, you’re still not going to lose your shirt (or your collection). Managing risk is its own topic, and one I have covered extensively, but the basic principle of risk management is that your gains and losses are limited by your initial investment.

$100 is a fine guideline, but if your entire collection is only worth $200, it’s way too high. On the other hand, if you’ve got a collection that clocks in around 5 digits, you can afford to dramatically increase your starting bankroll. This is where speaking in absolutes can be helpful; if you’ve got $5000 in cash, you’re probably not going to get excited about making $20. You ought to, but you probably won’t. You still ultimately want to make your decisions based on relational numbers not absolutes. By using the 15-20% rule of thumb, you know that each trade you make increases the value of that subset of your collection. Put in other words, if you grow 20% of your collection by 5%, you still have increased the net worth of your whole collection, even if it’s not by much. Over the course of days, weeks, months and years, those small percentage gains all add up.

The rest of the article, especially the part about identifying “good” speculations, was absolutely great. Doug really nailed it in this section, including the use of perfect case studies when applicable. I can find no fault with those suggestions, and in fact endorse them highly. Doug is often my go-to guy when it comes to Legacy, since he is so damn knowledgeable about the format and the marketplace that surrounds it. I’d like to thank him for giving me the food for thought, and for soliciting my opinion on his work, and I’d also like to thank StarCityGames.com for allowing me the chance to speak my mind on my most passionate of subjects. Thanks for reading!

Kelly B Reid
Editor-In-Chief, Quiet Speculation
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