By: Jason Alt

“In order to manage risk we must first understand risk. How do you spot risk? How do you avoid risk and what makes it so risky? To understand risk, we must first define risk.”
– Seinfeld Episode 140 “The Fatigues”

Did anyone see that episode? The whole point of the story arc was that George had to read a book about risk for work but he hated the voice inside his own head so he got a book on tape to make it less boring. The guy reading the book on tape sounded just like him because the Seinfeld universe is really wacky. I think that was the episode where that Jurassic Park guy said “Hello, Jerry.” It was a great show.

If it were me, I wouldn’t need another person’s voice to distract me from boredom to read a book about risk. Risk isn’t boring. At all. Risk is the least boring thing ever. Not risk is boring. “Not risk” is investing 4% of your paycheck into a company approved 401K investment plan because your company matches you dollar for dollar. Risk is e-mailing a picture of your buttcrack to everyone on the company’s e-mail distribution list, telling your boss you want to get a new job as a racecar driver and taking your life’s savings to Vegas to bet it all on black. Russian Roulette is risky. Skydiving is risky. Not wearing a condom is risky. What could be more exciting?

The Risks We Take

I’m not a millionaire. Shocking, right? I don’t have all of the money there is on the planet. Despite experiencing a high degree of success both in picking the correct specs and lucking into some opportunities in the community, I’m not the richest person on earth. That’s because 100% of my specs are not fruitful. (Edit-100% of readers are not able to figure out that I am not saying 100% of my specs are wrong, but that fewer than 100% of my specs are fruitful. It’s a confusing wording, I’ll grant you that.) Sometimes I bet on the wrong horsey. Sometimes the winds shift, the metagame changes, new cards are printed or a card gets banned and a pick that made sense last week is suddenly a poor bet this week. Sometimes you make the right call but you misjudged demand and you end up like Travis Allen did this year. Speculation is hard. You can nail a spec like Travis did and still not make a ton of money on it. You know how often a card quadruples in value? Not often. You know how often a card quadruples in value and someone from the finance community is far enough ahead of it to take advantage of scooping copies? Less often. Much, much less often. We’re not psychics, we’re just keen observers of patterns, holding on by our fingernails, hoping there wasn’t an important variable we missed. If you “hit” on a spec, you feel amazing. And you should – you accomplished something rare and wonderful.

Why We Should Go Deep

I hate myself in the worst way possible, so I spend time in the finance subreddit. Wait, I didn’t think that through at all. Someone’s probably going to link this article there and people are going to read it and be all “say WHAT?” Should have planned that better. Anyway, YOLO.

YOLO? Really Jason?

Yeah, it’s annoying when people say “YOLO” isn’t it? It was supposed to be the next generation’s “Carpe Diem” but it’s turned into a phrase that more often means “Oh, did I make a terrible decision? Oh well, no sense crying over spilled milk. Or, you know, learning.” I don’t see a lot of people saying the literal phrase “YOLO” on reddit. Not that literal phrase. However, I do see that same sentiment reflected and it was the impetus for today’s article.

Travis’ piece about his spec only going up $0.75 was a cautionary tale about a scenario where a spec can “hit” but there are no buyers at the higher price because there was no demand. His piece wasn’t written as a response to the same sentiment I’m responding to, but it does address it. I’m referring to a mentality I see applied to low-risk specs.

Hypothetical Scenario

I see a lot of people say something like “I think Prognostic Sphinx is a good spec. It was everywhere at the Pro Tour so I bought a playset.” A discussion starts. Inevitably someone will point out that the Pro Tour was block so Sphinx probably shined because there was a smaller card pool. Someone else might point out that block is a decent predictor of future standard, but not always because Khans of Tarkir could give us something to invalidate the card completely, similar to the way that Dungeon Geists really fell off after that block Pro Tour despite a very impressive showing by the geist deck from players like Jon Finkel.

“But Prognostic Sphinx was only a quarter. If it goes up, I profit, if it doesn’t, oh well. I only bought a playset. I won’t lose anything.”

Sure but if you only bought a playset, you don’t gain anything if it goes up, either.

“YOLO”

  Stop Saying “YOLO”

I speak very highly of low risk specs all the time. The closer to “bulk” you buy in, the lower your risk is. Bulk rares spike up all the time due to changing circumstances. Ryan Bushard, famously, made money off of Death’s Shadow spiking up from a dime to a few dollars not once, but twice. If Death’s Shadow hadn’t done anything, he could have held onto it for as long as he wanted. There is a cost to that- the opportunity cost of having your money tied up in a busted spec. Then, if he wanted to get out, he could sell them as bulk rares. Presuming he got in for a dime, he could get out for a dime with his only breakage being shipping and processing costs. Worse things have happened. With such low downside it made sense for him to buy a playset, right?

WRONG.

If he’d bought a playset and the spec ended up busted, he’d be out a small amount of money, so why not risk it? If the spec had hit, he’s be in… a small amount of money. Practically nothing. Let’s play with made up numbers.

4 copies at $0.12 = $0.48

Shipping = $2.39

In cost – $2.87

After sitting on the cards for a week or so, the spec pays off! Either Sam Black wins a Pro Tour with 4 copies of Death’s Shadow in his deck, or Travis Woo says something that rhymes with Death’s Shadow on his stream. Either way, the card is going to be worth $5 by Monday!

You hope on TCG Player but it’s jammed with people trying to sell their copies for $4.35 and it’s ticking down. Still, Star City upped their buylist price to $1 each! Wow! That’s 10 times what you paid! Cash in, you lucky so-and-so.

Buylist order

4 copies at $1 = $4

– 3% Paypal fee = $3.84

– $2.39 shipping the cards to SCG = $1.45

$1.45 – $2.87 = -$1.42

Congratulations. You correctly predicted a price spike of 5,000% – a jump that only occurs once every year or so. Your reward for having the foresight to see a 5,000% increase coming is you profited negative $1.42. Time to call your boss and tell him to suck it- beers are on you tonight!

Think about it. If you had bought 40 copies instead, what are we looking at?

Your cost is $7.19 instead of $2.87. Not much difference.

Your profit after shipping to the buylist and paying your initial cost is $29.22. That’s still not worth the effort, and we’re buying in ten times the “YOLO” order.

Buy 100 copies and your initial cost is $14.39 (exactly twice what 40 copies costs-thanks shipping!) and you make $100 on the buylist, lose $3 to fees, $2.39 to shipping and actually profit $80. $80 is not a bad payday, but you’re paying yourself minimum wage, probably.

I like these low-risk “penny stock” picks like Death’s Shadow, but what people need to realize is that if you’re not going DEEP on the spec, you’re not making money. 100 copies is not deep unless you have a better out for the copies than the buylist. Can you sell 100 copies on TCG Player while competing with everyone else trying to capitalize on the price spike? eBay?

Like Tahiti, “locally” is a magical place

How about “locally?” This is another thing you’ll read a lot. “I’m not going to sell to a buylist, I’ll just sell these locally and not pay any fees.”

I don’t know about you, but I’m not able to walk into my LGS with 100 copies of Death’s Shadow and walk out with $500 cash. This “sell them locally” response is bandied about more often with respect to small quantities; a playset or two. You don’t pay shipping or paypal fees or take the big hit buylisting if you just sell them “locally.” I guess? Let’s say you have local buyers in place. If you bought a playset of Death’s Shadow and your cost is $2.87 and you get $20 for the playset, that’s pretty good. It’s very good! You can make even more scaling that up. How many local buyers do you have? What’s your plan for the rest of the copies? You’re going to buylist all buy a playset or two, most likely. You profit $20 or $40 extra. Even if your only plan was to buy a playset or two to sell at the shop and you get full SCG retail, cash, no fees, how well did you do? Percentage-wise, you CRUSHED it. Still, you made, what, $40? If you could do it every day, that would be great. But how often is a card going to go from a dime to $5? Once a year? Less? And you correctly predicted such a rare event- you deserve more than $40.

How To Get What You Deserve

Put yourself in a position to actually benefit from a card’s price spiking. Predicting price spikes is HARD. Make sure you’re rewarded for being correct. It’s not easy to do and you can’t count on it happening often, so treat each spec opportunity like it’s once-in-a-lifetime.

Buy enough copies to actually make money if the card’s price goes up. I can’t emphasize this enough.

Don’t spec with money you can’t afford to lose. Most of the time this isn’t a stock market, it’s a slot machine. Gamble responsibly.

Make sure you diversify your investment portfolio. Don’t jam all of your eggs in one basket. Have a nice mix of long and short-term specs. Turning those short-term specs over means you can have some money liquid to buy into new opportunities as they arise. You don’t want to sell your long-term holds prematurely for practically what you paid for them to have the money to buy into something else that comes along. Bankroll management is bankroll management whether it’s with money or specs.

Final Thoughts

You’re risking your money when you speculate. If it were a sure thing, I’d be a millionaire. Even if I were only going to make $0.75 a copy like in Travis’ sobering scenario, if I knew 100% that I would make $0.75 a copy, I would just take out hundreds of thousands of dollars in loans and just print myself a fortune $0.75 at a time. There are limitations to the amount we can spend, the number of copies we can get in, process and sell. There are limits to the number of copies any given person or buylist will take off of our hands. But if you believe in your spec, go deep! Have fun- speculation is fun, so treat it as entertainment and you’ll be less gun-shy about investing. Remember- this is hard to do and being ahead of a spec doesn’t happen every time. You made an intelligent play by getting ahead of a spike, so make sure you make it worth your while.

I was on Facebook earlier this week.

Yes, I know; Facebook is terrible. Everyone’s parents are on Facebook and they’re reported to potentially lose 80% of their users and Zuckerberg just sold 3.2 Billion in Facebook stock; it’s a cesspool. I get it. It’s useful to join Facebook groups to engage with brands you like and find sales and trades and it’s fun to see who from High School got fat and went to jail. It’s also (sometimes) instructive to see what people are saying about cards. Some people think that they have to set the record straight when people are wrong about cards, but it’s really more useful just to sit back and see what different groups are saying.

This set is bad. I don’t think I’m shocking anyone with that proclamation. Not every set can be good, that’s an impossible standard. But no set should be this bad. There are literally 3 cards I care about and one of them I only want to get copies of because I can virtually guarantee it’s overpriced by 300% and I want to trade it out for cards that will retain value. I’ll give you a hint- it’s blue and black and it rhymes with “Den Hacks”.

Given that the set is bad, people are doing something very curious, which is to try and find nice things to say about bad cards they would normally skip. I actually think that’s a great practice, because people who play mostly standard tend to ignore about 90% of every set and focus on the 10 cards that are going to get played in Standard and they tend to miss the stuff with the most financial potential. I happened upon a conversation one day in a Facebook group that was discussing a new card that was just spoiled.

One succinct, one-word review proclaimed “EDH” as if to say “Boom. Nailed it. Moving on.” That would be a pretty good way to handle not spending too much time on a card that was clearly not going to see play in Standard. There was just one problem.

This isn’t really that great in EDH.

Card Analysis is Hard

Even pros get it wrong sometimes, but Standard players are generally about 95% accurate with their gut reactions to cards. Bad stuff is usually very obviously bad, limited-only stuff is generally pretty obvious as well. Good stuff can be even more obvious, and though some cards are initially under or over-rated, Standard players are usually pretty close. They know what they want to play in those formats and it’s easy to identify.

With more people getting involved in MTGFinance, it seems like every set there are fewer and fewer opportunities to make money pre-ordering cards from Standard. Sphinx’s Revalation was embarrassingly-low as was Angel of Serenity. I ordered Thragtusks for $5 apiece from eBay. Five. Actual. Dollars. Price corrections happen much faster because people are on top of it more and more each set. 50 copies of Pain Seer at $2 sold in minutes and the price was corrected very quickly. I am not convinced Pain Seer should be more than $2, but the people buying it at $10 a copy disagree.

With it getting tougher to make money by analyzing the cards from competitive formats it is even more important to learn how to analyze the cards from other formats. The person who gave Astral Cornucopia a dismissive “EDH” as if the card were a waiter who reached for his salad plate before he’d finished picking at it probably won’t lose any actual money by not correctly evaluating the card (and I likely won’t lose any if I’m super wrong and Cornucopia is just what people need to go from 9 mana on turn 6 to 13 mana on turn 7, thus winning all of the EDHs forever) he’s probably going to lose out on a lot of money eventually by failing to correctly evaluate EDH cards. If you see a card that is worse than Darksteel Ingot at 3 mana and worse than Gilded Lotus at 6 mana and say “EDH players will want this”, you should probably play a game of EDH, ever.

You Should All Play a Game of EDH, Ever

I’m serious. I was a very late adopter of EDH but I’ve seen the value in how playing it has allowed me to access an entirely new customer base. EDH players are way better to trade with than people who only play competitive formats. After weekends at SCG Opens where some competitive player would look through three of my binders and say “I’m pretty much only looking for Snapcaster and Boros Reckoner” I thought I would quit trading altogether. What I found when I traded with EDH players was that the amount of stuff they were looking for was way higher and they had no reservations about coming off of competitive cards. Having an EDH deck to play a few games will not only introduce you to those players, it may demonstrate the power level of certain cards you may be able to hook them up with to improve their decks.

EDH isn’t a joke. It’s not a fad. It’s not something to deride or dismiss. It’s a completely new card game that uses the same cards you already have and if you don’t know anything about it as a financier, you’re doing it WRONG.

Build an EDH deck. You probably have a dozen of each Commander 2013 deck, right? Bust one open. Jam some better cards in there. Evasive Maneuvers seems fun given you can generate infinite mana with the general Derevi, a Deadeye Navigator and a Gilded Lotus (or an Astral Cornucopia at X=3…maybe I was wrong about that card. No I wasn’t). Power Hungry is begging for you to jam a Parallel Lives and a Doubling Season in there and go to token town. It would take you 20 minutes and $20 to make a serviceable EDH deck with stuff you have in binders and boxes and you can trade for the rest. Once you play a few games, you’ll know right away what is good in EDH. You may have been playing since 1996, but you’re about to get humbled when you have to ask someone to hand you a Black Market or a Mana Equilibrium so you can read it.

Then, One Day, You’ll Get it

You’ll learn that you can never buy too many copies of Sol Ring at $2 or Gilded Lotus at $3. You’ll learn that Japanese foil EDH generals aren’t quite as liquid as you thought, but your group can’t get enough copies of Food Chain and Pattern of Rebirth. You’ll learn why it was a good idea to snap foil Sylvan Primordial for $1 the first week the set was out but not buy foil Chromatic Lantern yet. No article can teach you how to truly evaluate cards in EDH as well as playing a few games, building a few decks, meeting a few people who come to your shop every week but whom you’ve never met because they don’t play FNM.

You’ll also learn that there are different kinds of EDH groups, and while competitive players will not play a card like Astral Cornucopia, casual EDH players might. When games go a million turns, playing this for 15 to tap it for 5 may be what they want to do. That won’t drive the price up that high and won’t make this card suddenly a good investment, but it will let you know which kinds of EDH players might want this off of you. But how will you ever meet them if you don’t play with them?

Just like someone who plays Standard will recognize the immediate impact of cards like Brimaz, someone with a few EDH  decks and some experience is going to correctly identify the sheer, awesome power of a card like Prophet of Kruphix or Progenitor Mimic and they are going to recognize that although a card like Astral Cornucopia looks durdly and mana-intensive, that isn’t a bad thing to every group . They’ll know that by having an understanding of the format, some experience playing and some decks built so they will know what their own specific needs are.

Also, once you’re building EDH decks and picking up cards to build with in the future or trade to your group, you’ll pay more attention to prices. I’ve made way more money picking up underpriced Vigors from competitive players who only cared about the ten cards that get played in Standard from each set than I have trafficking in Huntmasters and other cards with thin margins due to a low spread. I’ve had 10 copies of Thespian’s Stage disappear out of my EDH deck stock box in one night and had 10 sit unsold for weeks on TCG Player despite being the cheapest listing. You won’t have to ask twitter why Kami of the Crescent Moon and Wheel and Deal and Forced Fruition are quintupling in price because you will have seen the power of those cards in a Nekusar deck demonstrated and you will have stocked up before the big spikes.

Rather than handing out a few fish, this week I wanted to teach you to fish and in this case, learning to fish involves playing Magic. It’s not even going to feel like work.

Finance Quick Hits

• Nekusar isn’t done making stuff spike. Any card that makes people draw extra cards and hasn’t been reprinted is a good target.
• For the love of Heliod, didn’t anyone read Pain Seer?
• Bitterblossom getting bought weeks in advance of the B&R announcement is a new trend. Don’t expect to be able to have a full shopping cart at 11:59 like you used to. I really don’t expect this (or anything) to be unbanned next week and I expect the price to tank back to where it was.

Welcome back, constant readers

Last time I think I made it as far down the “Greater Fool Theory” rabbit hole as wikipedia pages is going to take me. I think we covered some new ground and maybe we’ll get some of those concepts to stick. We might; I caught someone on Reddit encouraging someone not to be a “baggage holder” which I thought was pretty sweet. I made a case for not buying when it only helps people who bought in cheaper. What say we put an end to all the non-traditional finance articles for a while? It was cool to delve into theory for a while, but I felt like I covered “don’t do this” thoroughly. What should you do when you’re not too busy not doing that stuff?

That’s a good question. I think I am going to go back to what I know. And what I know is that if you live in a somewhat densely-populated region of the world, there is a good shot you’re fewer than 50 miles from Magic cards you want and that are owned by someone who doesn’t know what they’re worth.

I know that somewhere in the United States there is a guy who owns a computer repair shop and sells Magic cards out of a dirty, cracked display case. He looks up card prices in a Scrye magazine from 2003 and takes mint condition cards out of a cardboard longbox and gives a discount if you pay him with cash. The cards in the case are just for show- he only sells the cards from the longboxes that have been untouched by human hands for years. I know because I bought Sylvan Libraries from him for $4 and we talked about Baseball.

I know that somewhere in the  United States there is a guy who has a few dirty binders behind the counter of his comic book shop. He priced the cards back during Mercadian Masques and he has a computer that he uses as a cash register, but it doesn’t connect to the internet. He writes receipts by hand with an ornate silver inkpen and figures out the tax in his head. I know this because I bought Unhinged booster packs from him at MSRP, Tower of the Magistrates for $2.50 and a Karakas for $5 when they were $40 and we talked about our favorite “Daredevil: the Man Without Fear” writers.

I know that somewhere off a dirt road that you will only access if you make a wrong turn as I did there is a store called the “Antique Barn” with an old cracker barrel out front with an electric lamp that only looks like an oil lamp and inside they have a box of Magic cards with a handwritten sign that says “Each card $1 dollar[sic]” and I bought three Goblin Lackey, four Recruiters, five Elephant Grass and a Sterling Grove for $1 each. When I asked how much he would sell me Portal Basic lands for he said “Whassda sign say?” before spitting chewing tobacco spit into an Ice Tea bottle. I left the lands.

I know that when I go to a town I’ve never been before, I do what you would do. You pull up the Wizards Store locator and just see if there is a place that sells cards, holds events, has a community. You’ll drive past it until you realize you saw a cardboard cutout of Gideon or a sign with Jace on it, sun-weathered and dog-eared, and you’ll turn the car around and go back. They’ll have cases full of cards and they’ll look the prices up on Star City Games and knock 5% off and beam magnanimously like they offered you a free gold bar instead of cards that are still 15% above TCG Player. You’ll look for two minutes then pack back into the car. If there are five places in that town, four will be like that and one of them will be OK.

I know this because Ryan Bushard and I like to go on shop crawls and hit lots of stores. I wrote about one of them on QS a million years ago. We called dozens of shops ahead of time to see which ones we could eliminate based on a phone conversation and still hit a lot of busts. We hit a few great ones, too, but the best shops we hit were on accident. People who do this sort of thing usually do it wrong. I know, I did it wrong for a long time, and I still do.

How often do you check your local Goodwill? I have found cards there. I haven’t found anything great, but if Reddit is to be believed every few months someone somewhere will hit it big and find very good cards for almost free. I have ruled out my town. Have you? You live somewhere after all. Mothers clean out closets when kids go to college. Good stuff ends up in odd places. It takes five minutes to look.

Your success rate at garage sales is going to be under 5%. Better go to at least 20 in your life if you want to beat the odds. Have you gone to 20 garage sales looking for cards?

You want to know the REAL goldmines? Baseball card shops. Shops that sell gold coins and geodes and old, weathered newspaper clippings in vinyl bags. Flea markets in small, flyspeck towns. You think you’re going to show up in Duluth Minnesota and find a $5 Karakas in a binder ten minutes before an FNM starts with people elbowing you out of the way so they can buy sleeves or pay their entry? You think you’re going to find good singles in a binder that doesn’t have a layer of dust on it?

I would wager there is a store in the town you live or an adjacent one you’ve never set foot inside. It doesn’t look on the outside like it has Magic cards inside. That’s the point. You want to be first. You want them to reach down underneath a counter, or move a stack of comic books to uncover an old box. You see Pokemon cards mixed in? Great, they aren’t looking that up on Star City. They’re probably going to take an offer on the box. I’d wager there is value fifty miles from where you’re seated and you never thought to look there because no one thought to look there. I used to think I had to go far from home to find the value. There couldn’t be anything close to where I live, right? I would have found it already.  Someone I know would have. How are you supposed to find undiscovered treasure if you think like everyone else? Start ruling local places out. Widen your search to neighboring towns.

I played FNM and booster drafts for 18 months in a motorcycle garage after they closed for the night, two card tables jammed between displays for helmets and gloves, the air smelling like oil. Should you check every motorcycle repair shop and used car dealership and petting zoo for singles? I can’t tell you what to do.

But I know no one else checked there first.

Finance Quick Hits

• We don’t know much about Born of the Gods, but neither does anyone else. We’re getting a G/W Temple. Expect GW stuff to increase in price on hype alone. Be a seller, not a buyer in those situations.
• Kiora looks pretty bad to me, but there is hype. Temple of Mystery is at its floor. $5 is demonstrably the ceiling for a temple, but Kiora hype could make this happen and that’s a double-up.
• Kami of the Crescent Moon is selling for $6 on TCG Player. Check any and all gold coin stores and computer repair shops near you. A lot of weird stuff spiked this month.
• It’s too late for Genesis Wave, but if that deck is a thing, cards like Primeval Titan have room to go up. Be prepared.
• Sam Black is brewing in Modern. Pay attention when Sam Black brews.
• When the new set comes out we will still be using packs of Theros to booster draft. Take this into consideration.

Hello, Constant Reader

In the last installment, we dealt with the Keynesian Beauty Contest and how thinking rationally and a few steps ahead can lead to your avoiding potentially ruinous decisions. Taking into account what everyone else will likely think in a given situation is how you make the best possible informed answer.

In my research for the last piece about the Keynesian Beauty Contest, I stumbled across some reading about the concept of Nash Equilibrium. Did you see “A Beautiful Mind”? Well, that John Nash, portrayed by Russel Crowe in the film proposed the theory. Stated simply, Nash Equilibrium is a Mexican Standoff. In a non-co operative game, situations can arise where each player who knows the other player’s best strategy will not benefit from changing their own. They are essentially in a deadlock, or in Equilibrium.

What defines this equilibrium is whether party A is making the best decision they can, taking into account the decision party B will make, and that all hinges on on Party B making the best decision they can accounting for what Party A is likely to do. This doesn’t even have to be a dichotomy, as any number of players can be involved and they will only be in equilibrium if they make the best decision they can given all of the other players’ decisions AND provided they don’t change their decision.

I got into this topic because I believe artificial price spikes are the kind of system that can be modeled using this theory, but I also believe that in the case of artificial price spikes we don’t have a true Nash equilibrium because I believe there is a party integral to the system that is not making the best decision they can for themselves but rather the best decision for the system based on faulty logic on their part. The result is the same, though, because the decision they make does not disturb the equilibrium of the system. I maintain, though, that it probably should.

In a lot of ways the “cog” in the middle of the great machine is most important and also most tightly-bound to the rules of Nash equilibrium. At its core, it’s a theory that says once equilibrium is established, no one can do better by changing their behavior. Unfortunately, that’s true.

Moving Parts

Why is it the middle cog that is so essential? It’s really simple – in this case, the guts of this equilibrated system are the greater fools we discussed earlier. To recap briefly, the Greater Fool Theorum as applied to Magic finance is a premise that means some people buy into a spiking card and can only expect to make any money if someone more gullible buys the card from them at a higher price. These greater fools are what makes it possible for artificial spikes based purely on hype and buying frenzies to occur, and their unenviable position makes these systems follow the rules of a Nash Equilibrium. The only reason this works has to do with how someone becomes part of the system.

If you are participating in a card spike, you get “in” when you buy in. The first buyer is a store or individual who bought the card for its pre-spike price either because they wanted to have it to play with / in inventory or because they saw the spike coming. There is hype, either from deck results, conjecture or someone initiating the price movement with a big buy-out of a site (it only takes one site, usually; the rest fall like dominoes) but the system is not in equilibrium until there are more players.

This is where the greater fools come in. They buy at a post-spike price that may be lower than the peak price, but once they buy in, they are sunk. They absolutely have to hope for even greater fools to buy from them at the spike price or they are sunk. Lots of people break even in this position, and it’s no fun to be in for a few reasons.

The hallmark of these artificial spikes is a card starting at X, spiking to 2X when it’s bought out, peaking at 4X at the peak of hysteria and going back to 2X as people undercut each other trying to rid themselves of copies of the card. Inevitably in these cases, a lot of fools who buy in at 2X end up bagholders and sell out for 2X again.

The worst part about their position is that they are locked in to Nash’s theory of equilibrium as soon as they buy in. What are their options? Sell out at 2X immediately? That doesn’t help them out of the jam they put themselves in. There really is nothing they can do to improve their position but wait and try to sell to a greater fool, and their inaction doesn’t violate the equilibrium of the system. They really have no options except for hope, and hope is not an investment strategy.

For the other actors, they have few options as well, and they get forced into their positions. I’m not sure you can have a true equilibrium as envisioned by Nash (who also envisioned people who weren’t there, so what does he know?) when people have their initial move determined for them, but I would argue that you have the option to stay out of it, so even making forced moves is still abiding by equilibrium because doing anything else but making the forced move (or staying out of it) is not going to give you a better outcome and therefore are bound to the system. So a player who wants the card to play with doesn’t have a choice but to pay the card’s price at the time they buy in.

One actor we’ve ignored until now is the actor who initiates the price spike. Could this person or persons act in a different way and end up better off? This is the true test of the theory as it applies to the scenario I have concocted. When you think about it, buying low and selling high is probably the optimal play, dumping as many copies onto the market as fast as they possibly can is probably the optimal play (for them) and maximizing their profit in the shortest time-frame possible is probably optimal. There is really nothing they can do to improve on this, and in so many of these cases, this is exactly what we see happen. This actor is in an enviable position, but that doesn’t mean there is any benefit to breaking the rules and making a different play than the one everyone expects.

The Point

Why do we care about the concept at all? Even if you agree with my analysis (assumptions) about the system, what good does establishing the system is a Nash equilibrium do?

I maintain that mtg finance is cooperative, as all system bound by the theory must be. If you buy cards, you help the seller. If you sell cards, you help the buyer. And if you buy an artificially-inflated card for 4X, you help the guy who bought them for X and knows that 8X is a pipe dream. Since this is the case and once you lock yourself in and pay 2X or 4X for a purpose other than just playing with them, you’re locked in. You will not benefit by doing anything other than what everyone expects, and if you think that position is unenviable, it’s probably best to win the only way you can.

Don’t play.