Hello and welcome back to In General, the segment where I talk about anything and everything related to Magic: the Gathering. We are in the midst of a four part saga about using Magic as a financial investment. If you missed the first two segments you can check them out using the links below.
Part One: The Primary Market Price
Part Two: Secondary Markets
In last week's segment we talked about some of the difficulties one encounters when using MTG as a financial asset. Today we are going to look at some of the principles that can help you successfully invest in the game.
Strategies for Financial Growth
It is important to remember that as the game grows, so to does the market for those products, including all manner of merchandise that aren't cards. An investment in a card is likewise an investment in the growth and success of the game at large. You need to think in these terms when you are committing to any investment.
Diversification - You have heard not to put all of your eggs into one basket. If you separate your investments they won't all break at once. If you identify that a card is likely to increase in value, commit to that investment, but don't commit 100% of your portfolio.
Modern Portfolio Theory essentially confirms that you will produce more consistent, positive returns by diversifying across not only different cards, but across different asset classes. Invest some of your money in singles, some in sealed product, and some in limited edition collectibles, original artwork, memorabilia etc.
Timing the Market - Or more accurately: don't try to time the market. You have probably heard the old adage, buy low - sell high. Life isn't always that simple, but it could be...if you stay disciplined. If you have made some good money on an investment, cash out. It doesn't matter if it continues to increase or not, you made money and consistent returns will keep in you in business. If you are unsure about where prices are headed, it is best to 'close your position' (sell for cash) and lock in that gain.
Also, don't buy anything while prices are volatile. The best times to buy are BEFORE a big tournament, not after you have heard the results. When a new set comes out, don't buy it. Instead, buy an older set that has probably gone down in value because people have moved their interest to the new, hot thing. If you want to hold a product for a long time, wait until it rotates out of Standard to purchase it at the lowest price.
Positioning Your Assets
To make money in anything, you need to be in the in the right place at the right time. So much depends on your choice to move in and out of a particular investment that I think it bears a more in-depth treatment.
Position - Your position in a product is how much you hold of it and why.
There are really only two positions you can take on an investment: Long and short.
Long - Taking a long position means that you are going to buy something and hold it while it increases in value. You take a long position because you think something is undervalued.
Short - Taking a short position means that you are selling something and converting that value to cash. You take a short position because you expect the price to decline soon.
If you aren't buying or selling a particular product, you simply don't have a position on it.
It is the advice of this author that if you want to make any money investing in Magic you must buy and hold for the long term. When you get in/out, the size of the spread, and market fluctuations will have an effect on your profits, but they are minimized when you take a long term approach. Don't forget that there is a market for more than just singles! Diversify your investment so that the popularity of particular cards or formats doesn't decrease the value of your investment.
This series has become quite the epic. Many apologies Zoners, but I have a lot to say and only so much time to say it. Join me next week for the epic conlcusion of my discussion of MTG Finance where I will discuss RISKS!!!
-GG
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