Tag Archives: Sigmund Ausfresser

UNLOCKED PROTRADER: Advanced Economics & MTG Finance – Part 1

By now it’s no secret that I treat MTG investing very seriously. So seriously, in fact, that I compare the performance of my MTG portfolio loosely with that of the S&P 500. And why not? If I’m going to legitimately invest real dollars in original dual lands, shock lands, booster boxes, etc. then it only seems appropriate that I compare the return on these investments with that of other investment opportunities.

But my holistic approach to investing doesn’t stop here.

This week I want to dive into a more advanced economics topic out of the field of game theory by applying one of the most well-known truisms of game theory to our favorite MTG topic: buyouts. That’s right. I believe that we could potentially apply an advanced economics concept to understand something reactionary and emotional in the MTG Finance community. Think I’m crazy? Think it can’t be done? Well, allow me to at least try.

Nash Equilibrium

Before I jump into concept application, I need to establish a few assumptions first. These suppositions are not very far-fetched, so I don’t think you’ll have difficulty accepting my thesis because of these assumptions.

First, let’s assume that when a buyout of a certain card occurs, everyone attempting to purchase the card does so “simultaneously.” That is, when we’re ready to pull the trigger and make our purchase, we aren’t waiting for someone else to take their turn making a decision before us. We click the buttons as fast as we can to purchase the copies we want. And in the meantime, everyone else is doing roughly the same thing. In other words there is no turn taking or prescribed order.

Second, we have to acknowledge buyouts occur in a non-cooperative manner. For example, when Den Protector spiked during the most recent Pro Tour, I wasn’t colluding with others in an attempt to obtain the market price I wanted. No strategy was involved in this regard. I rushed to eBay and TCGPlayer and picked up a bunch of copies as quickly as possible. I may have mentioned my actions on Twitter, but this communication was ex post facto. And even if I had cooperated with a friend, it’s not like the whole MTG community speculating on a card would ever work together – it’s an aggressive business we’re in!

With these assumptions in place, I will borrow Wikipedia’s eloquent definition of “Nash Equilibrium”:

“In game theory, the Nash equilibrium is a solution concept of a non-cooperative game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only their own strategy.”

John Nash was the famous economist who developed this theory and later earned a Nobel Prize for his work in the field. You may also recognize the name from the movie showcasing his genius and his struggles with schizophrenia, A Beautiful Mind.

NashHis Nash equilibrium concept describes motivations for people’s behavior when interacting non-cooperatively. (Aside: In game theory, any such interaction is referred to as a “game.” This is not comparable to playing a game of Magic – rather, the game I’m describing is the decision process of where we buy our cards and for how much during a buyout).

If we want to look at the definition of Nash equilibrium above, we can use specific terms to describe MTG buyouts. The first part of the definition describes the “solution,” or the actual outcome of everyone’s buyout decision (i.e. total copies purchased, where they were bought from, resulting price spike, etc). The second half of the definition is a bit more advanced. Essentially, the suggestion is that all parties involved know everyone else’s best strategy. In MTG buyout terms, we need to make one more assumption: the best action at the beginning of a buyout like Den Protector’s is to buy up copies at or near the starting price.


When a buyout happens due to legitimate demand, the card’s price jump is more likely to stick. Therefore, purchasing copies at or near the starting price during a buyout is definitely the best strategy – it makes you the most money! Everyone knows this, and everyone knows that everyone else is also eager to buy those $1.50 – $2.00 Den Protectors before they double or triple in price.

Thus, we say the Nash equilibrium of the buyout is that everyone buys up more and more copies of the card and the price catapults higher. This is the best strategy because those who bought at $1.50 – $2.00 can in turn sell their copies for profit.

Prisoner’s Dilemma

With Nash equilibrium established, I next need to define the crux of this week’s article: The Prisoner’s Dilemma. It’s this canonical example of game theory that I believe can be applied to MTG buyouts in a profitable way. But before jumping ahead, I first need to share another definition. Wikipedia defines the prisoner’s dilemma as “a game analyzed in game theory that shows why two purely “rational” individuals might not cooperate, even if it appears that it is in their best interests to do so.”

Originally framed by Merrill Flood and Melvin Dresher, the Prisoner’s Dilemma is a concept that can be applied to a diverse number of real-life interactions ranging from cola advertisements to nuclear stand-offs. My argument is that this sophisticated game theory dogma also applies to buyouts of Magic cards.

Explaining the Prisoner’s Dilemma is best done by example. The namesake explanation involves two strangers caught robbing a store together. They are brought to the police station where they are interrogated individually. The police do not have sufficient evidence to convict the prisoners of an armed robbery charge – only illegal possession of a weapon, which of course merits a much lighter sentence. So in an attempt to drive out a confession, they offer each prisoner separately the same deal: rat out your friend by confessing, and you will be rewarded with no imprisonment.

What’s the Nash equilibrium in this case? Put yourself in the shoes of one of the prisoners. If you assume your partner in crime is going to confess, then there are two possible outcomes: you don’t confess and take the fall, letting your partner walk freely while you suffer 20 years in prison for armed robbery and lack of cooperation with the police; OR you do confess, earning you and your partner a lighter, yet-still-strict sentence of 5 years in prison for cooperation. Given these two options, your best choice is to confess at least ensuring you avoid an unnecessarily long prison sentence.

Now what happens if you assume your partner is trustworthy and he is going to remain silent? Once again you have two choices: if you also remain silent, then the police cannot convict you of the armed robbery (there’s too little evidence) and you both receive a one-year sentence for illegal possession of a gun. On the other hand, if you confess, your partner would go to prison for 20 years while YOU get to walk away a free person. Given these two options, your best outcome is still to confess, since it means you don’t have to do any time in prison! That’s the best possible outcome for you!

The picture below depicts this interaction in a 2×2 grid.


No matter what you assume your partner will do, the best decision you can make is to confess. And that’s what happens – both prisoners confess netting themselves the five-year prison sentence.

The advanced part of this comes into play when we compare the actual outcome with the optimal outcome. It is undeniably ideal for both prisoners to remain silent – it nets them the least number of total years spent in prison! But because of the selfish assumptions of Nash equilibrium (i.e. there’s little emotional motivation for helping the other prisoner), both prisoners end up with a worse outcome because they do not cooperate.

How does this apply to Magic? I’ll argue there are two applications.

Application 1: Instead of dealing with prisoners and robberies, we’re dealing with purchasing a quantity of a Magic card at a particular price. We’re all faced with the same decision point during a buyout – do you pull the trigger quickly and grab copies or not? The more copies you buy, the more opportunity you have for profit.

In this game, buying up a ton of copies is equivalent to confessing and cooperation involves collusion. How do the outcomes look?

If everyone rushes out and purchases a ton of copies in an attempt to make bank, many participants in this game are stuck paying too much. As we’ve seen many times in the past, a buyout leads to a card’s spike followed by a race downward in price as people try to sell their copies for a quick buck. Savor the Moment is a recent example of this trend.


Notice how copies are scooped up aggressively starting in the $2.50 range in late March and ending in the $5.50 range, only to see a drop back down to around $3.25 most recently. When everyone decides to aggressively buy, the price jumps too high, too quickly. In these cases many people are left holding excess copies they are unable to sell for much profit because the higher price inevitably leads to a glut of supply as people try to cash in on the spike. Of course, those who don’t jump in with their hard-earned cash are in the worst shape of all. They own zero copies and they are stuck either paying a higher price or waiting for a drop that may never occur (usually the price ends up higher than the starting price but lower than the peak). No one wants to be in this scenario as it’s the worst possible outcome.

So what does everyone do? They all buy up as many copies as they can, sending the price higher and higher! Missing out on the “next big opportunity” is just too painful.

My argument is that this is another example of the Prisoner’s Dilemma. We all “defect” by purchasing a ton of copies while leaving those on the sidelines regretting their inaction. But this leads to a subsequent market glut and difficulty in liquidating copies at a profitable price. I’d argue the best possible outcome would be if the people who wanted copies most purchased the playset they need and those who don’t really want copies just ignore everything. Such cooperation would mean that the people who want copies would get their copies, but those who don’t simply stay away. The price may tick up a tiny bit, but there would definitely not be a huge spike. Then people who decide they don’t want their playset anymore could sell for a small profit and there would be no race to the bottom. And those who didn’t buy before aren’t faced with paying 50-100% more should they decide they want to obtain copies.

To me, this is the very definition of a healthy market. When a card increases or decreases in price it does so slowly and due to the natural shift in supply and demand. Crucible of Worlds is a great example of a card that has never been “bought out,” therefore leading to healthy price appreciation and no huge drops.


Wrapping It Up

So what’s the course of action here? Unfortunately, there is really little we can do to avoid the trap that is the Prisoner’s Dilemma. There’s a reason why both prisoners tend to confess, and Coke and Pepsi choose to advertise, and countries choose to invest in nuclear weapons, etc. etc. It’s not the optimal outcome for the entire population, but it is what inevitably happens thanks to Nash equilibrium.

I think the best thing we can do is at least make ourselves aware of this phenomenon before buying into the next spike. It would be naive of me to believe everyone can suddenly cooperate – it’s against human nature. But if we could at least communicate a little better as a community then perhaps we can soften the blow for those left holding the bag in a buyout. For example, when we make our purchases we could be more transparent with how many copies we’re buying and how much we are willing to pay for said copies. We could also make it public what our strategy is for selling – timeline and desired sell price.

Lastly, we could strengthen our relationships with others throughout the community. One thing Nash equilibrium always assumes is that everyone behaves rationally and in their best interest. Friendships and emotional attachment are disregarded. But of course these things DO exist in reality. By developing stronger ties with the rest of the MTG community, maybe we can all be slightly more sensitive to market manipulation. We’ll never eliminate price spikes altogether, but maybe we can help our friends avoid losing money by buying into the hype too late.

I’m out of words for this week’s column, but perhaps you’ve noticed something. I only shared one application, but I said there were two! In similar fashion to a “You Choose the Scare” R.L. Stein novel, I’ll pose the question to my readers: did you enjoy this topic enough that you’re curious to hear my second application as a Part 2 to this article? Or would you prefer I moved back to more traditional MTG Finance writing? Leave your opinion in the comments section, and we’ll let the majority rule!

Until then, thanks for reading!

Sig’s Quick Hits

  • There’s another reason I used Crucible of Worlds as an example in my article. Nonfoil copies of the rare are completely sold out at Star City Games. Tenth Edition copies are sold out at $30.79 and Fifth Dawn copies are sold out at $32.35. If these don’t see reprint in Modern Masters 2015, there’s no reason they won’t continue to slowly chug higher.
  • I honestly thought Bosium Strip was a forced buyout that would result in a subsequent price drop, just like my Savor the Moment example. But this has not been the case. Perhaps not enough copies of the card exist for the market to truly be “flooded” by eager speculators. In any event, SCG is sold out of the card at $4.89 and Channel Fireball currently has a buy price of $2.50!
  • Another card that has healthily grown in price over time is Umezawa’s Jitte. The card has always been popular in various formats where it isn’t banned, but it’s never really in the spotlight. Star City Games has only 3 total copies in stock, with 0 NM copies at a $36.55 price tag.

What Warren Buffett Knows About MTG Finance

Last week, I shared an introduction to me, my motivations, and my risk equation. A Twitter conversation prompted the last of these, and it felt like an appropriate topic to share when establishing my investment style on a new website. In a way, it reveals what you can expect from me as a writer for the weeks and months to come.

But I’ll admit I got ahead of myself a bit. I began delving into the how before first covering the what. In other words, I haven’t even revealed what my current portfolio distribution looks like and how I came to these positions. Such an introductory piece is certainly merited, as it gives a baseline for future discussions. Additionally, the topic overlaps nicely with my general approach to resource allocation in MTG finance—a strategy I picked up from one of the greatest investors of all time.

Perhaps it is most appropriate to share the latter while integrating examples of the former throughout the column.

 The Oracle of Omaha

If I had to choose one particular influence in how I structure my investment portfolios—both in Magic cards and in stocks—it would have to be Warren Buffett. The Oracle of Omaha has been a successful, active stock picker for many decades. While it is cumbersome to establish a basis for his entire strategy here in one column, I will take the liberty to highlight a few key mantras I’ve picked up through my research.

  1. Find the right value at the right price.
  2. Stick to what you know.
  3. Take advantage of extremes.
  4. Know the management team.

Applying these strategies to stock picking is trivial and systematized already.  But did you know they are also highly correlated to how I conduct my MTG investing as well?


For example, consider the value equation and taking advantage of extremes. If I am confident a given MTG card or item is destined for an upward trajectory over long periods of time, then I’m most intrigued by that opportunity. The key, of course, is choosing your entry.

This is exactly how I approached my investment in shocklands. Recognizing the growth of the Modern format and WOTC’s dedication to helping it grow, I decided a sizable investment in shocklands was a wise move. Furthermore, the cheapest shockland during Standard block—Steam Vents—was also the cheapest for quite a while. Copies could be had for below $7 at one point!


The disconnect was that Steam Vents was one of the most played shocklands in Modern. Yet the card’s price was beaten and battered due to the high Return to Ravnica print run and the low Standard demand. Opportunity was knocking, and when I bought deeply into shocklands, I made sure to go deepest on Steam Vents.

The bet paid off to an extent. Just a couple years later, Steam Vents hit retail pricing nearing $14 and buylists have exceeded the low reached right around the release of Dragon’s Maze. This represents a nearly 100-percent gain from trough to peak. That was enough for me, and I rang the register at a recent Star City Games Open.

I noticed an extreme, I considered the long-term utility of the card, and made my bet accordingly. Warren Buffett would have been proud.

Weekly World News

Of course, the other shocklands haven’t responded nearly as well, much to my disappointment. Abzan strategies are ubiquitous in Modern thanks to the printing of Siege Rhino, yet the shocklands corresponding to black, white, and green have barely moved. Overgrown Tomb from Return to Ravnica is flirting with its all-time low established back in May 2013.


Would this worry Warren Buffett? Not at all. He recognizes that the market often takes time before realizing the mispricing of a given asset. Therefore, in a similar vein, I choose to sit on my copies and wait for the appreciation I’m confident will come. And if prices linger below $7, I may buy even more.  This is why shocklands remain a top holding in my portfolio.

Stick to What You Know

Because I track the Modern metagame closely, investing in shocklands is a large bet I continue to make with confidence. I understand how the format works—particularly when it comes to mana bases—and I use this knowledge to strategize how I invest.  I also recognize the risks associated with this investment and I am comfortable with the potential upside versus the downside risk.

This is directly related to another strategy of Mr. Buffett’s: sticking to what you know. Rather than chase the trendy stocks, such as 3-D printing or Chinese internet companies, Buffett prefers to invest in companies with tried-and-true strategies, large “moats,” and a history of consistent profit growth. Coca-Cola remains in Warren’s portfolio not only because of its dominant market position and global brand recognition, but also because he understands the company’s business model: make delicious soda consisting primarily of water; find an inexpensive way to bottle the product and distribute it globally; profit.

Do you believe me when I say this strategy is also directly applicable to Magic finance too? I use it all the time!

You may have heard me claim ignorance of Standard in the past. Nine times out of ten, the format bores me, and the constant fluctuation in which cards are legal and which aren’t can be bothersome. One month you could be battling with the best deck in the format, and then a new set could come out with cards that completely redefine the format. Worse yet, Standard could rotate, nullifying half your deck.


Because I avoid researching Standard, I also tend to avoid investing in cards from the format. Sure, I’ve had some successes in the past: the Innistrad checklands, Terminus, and a few others were very profitable for me. But I’ve also missed nearly as often as I’ve connected, making Standard a very suboptimal investment area. I simply can’t predict which cards will be good enough. The only buying of Standard you’ll likely see me do is pick up cards on the cheap for a quick flip during a pro tour or new set release. I almost never buy deeply into anything Standard.

On the other hand, I’ve done thorough research on sealed booster boxes. Over time, I was able to identify which sets were most attractive for investing. Once I was confident that certain boxes were undervalued and destined to go higher, I made my buys. The most significant investments I made were in Innistrad and Return to Ravnica booster boxes, though I dabbled in a few other sets as well.

The Innistrad boxes paid off very well, and every one of mine are already sold.


Although I did make profit on this venture, I’ll be the first to admit I sold way too prematurely. With cards like Snapcaster Mage and Liliana of the Veil hitting record highs, and the set being one of the most enjoyable to draft of all time, I should have trusted my gut and held longer. A tough lesson learned, but one worth exploring more deeply in a separate article.

What I did manage to hold onto are my Return to Ravnica booster boxes. This set was also talked highly of by Limited aficionados, and the set contains an array of eternal favorites including shocklands, Abrupt Decay, Deathrite Shaman, and Supreme Verdict. While none of these cards have hit the same price point as Snapcaster Mage, they all have significant upside as the set ages further. Eventually, these will hit a turning point and boxes will move higher. In fact, they’ve already shown some appreciation—when I bought in, it was around the floor price of $80 to $85. Now boxes are consistently selling for just above $100. It won’t be long before these go even higher, just like every booster box with eternal cards and a good drafting reputation. Applying this insight after thorough research has helped me make well-informed investment decisions.

Of course, investing in booster boxes isn’t all sunshine and roses. There are some major pitfalls I have also learned about. I’ll share details in a separate article some time, but I wanted to add this disclaimer here before a reader gets trigger-happy and randomly buys ten Khans of Tarkir boxes or something. There’s a reason I’m not buying more boxes at this point in time: the investment could still pay off, but I think there are better opportunities elsewhere. The key is sticking to what you’re most comfortable with.

Know the Management Team

You may be wondering how I could possibly tie this Buffett-ism to Magic investing. Sure, it’s good to have trust in a CEO like Bob Iger who has helped Disney grow substantially over the past few years. But there really isn’t any “management” team in Magic, is there?

Perhaps not precisely, but there is a parallel. Consider who the key decision makers are, and you can begin to understand their motivations. These motivations could have a profound impact on MTG investment choices.

Allow me to elaborate. Who is the “boss” of Magic? If you ask me, I’d venture that the Hasbro management team is the answer. They’re the ones cracking the whip and demanding certain profit numbers be hit by the WOTC team. So when they demand consistent profit growth of their brands, WOTC does what it can to deliver.

And boy, oh boy, has the company succeeded: recent sets have been blockbuster hits and supplemental products like Commander and Modern Masters have bolstered sales even further.

Of course, sales are surely augmented when Wizards dangles a carrot in front of us, right? Khans of Tarkir was hugely attractive because of the Onslaught fetchlands that were reprinted in the set. Commander products give us cards like Containment Priest and Flusterstorm, sure to delight any Legacy player. And I don’t have to tell you how easy it is for Wizards to sell a product with $200 Tarmogoyfs in the mix.

In other words, Wizards knows that reprinting money cards and creating new staples results in more product sold. That’s the management team on which I am focusing. It is their motivations that inform my investment decisions.


So how am I using this information to allocate MTG resources? WOTC continues to focus on reprinting to improve barriers of entry for Modern and, to a lesser extent, Legacy. Therefore I’m focusing resources on eternal staples which are either a) likely to dodge reprint in the short term (e.g., shocklands), or b) guaranteed to dodge reprint (e.g. dual lands).

In fact, the largest position in my entire portfolio—exceeding my shockland and booster box holdings—is my dual land position. I completely understand what drives their demand, I believe in their long-term price growth, and I know “management” won’t reprint them. It may take some patience, but dual lands have to be some of the safest investments one could make in MTG at the moment. And with recent pullbacks in pricing, certain duals are the most attractive they have been in many months.



These two duals in particular have drifted lower since their peaks in May 2014. Just because white-green and blue-green strategies are out of favor at the moment doesn’t mean they can’t ever return to center stage. Legacy is an eternal format, and I have to believe eventually the metagame will shift yet again, yielding to new dominant strategies. For now it’s red-blue strategies that seem to show up most frequently, but in the future, who knows? All I know is that I want to build up my position of duals now while they’re flat, so that I have them during their next inevitable spike. As long as “management” stays true to their word and doesn’t reprint these cards, then we can be confident in their long-term success.

Wrapping it Up

Hopefully, this Wall Street-centric approach to MTG investing makes at least some sense. To me, it’s the most logical approach. I could try chasing the buyout of the day or flipping cards quickly for short-term profits. I could also try the slow, steady grind, trading with the sharks at major events. But both of these approaches are time-consuming and arduous.

I would much rather use my time wisely by investing in cards with good long-term value, confident growth, and a wide moat. I trust in an investment like dual lands because I don’t think they’ll ever be outclassed and their demand is very steady while supply marches lower little by little over the years. This same reassurance just isn’t available for a short-term investment.

And when I find these opportunities—especially the ones with high upside potential and low downside risk—I make a decisive move.  In a way, this is also related to a Buffett type of strategy.  Once we find a great opportunity, we shouldn’t be afraid to move in with our resources.  Consider how Buffett’s current stock portfolio is very heavily weighted towards four individual stocks, making up 62 percent of his portfolio!


I follow this same weighted approach in my own stock investing.  But I also allow this principle to guide my MTG investing as well.  This is the reason I’ve got over 50 percent of my total MTG portfolio tied up in three primary investments: shocklands (foil and nonfoil), Return to Ravnica booster boxes, and dual lands.  These are three asset classes I’m confident in, and so I’m allocating my resources appropriately.  While I have plenty of smaller bets, just like Buffett, I try to place larger amounts in the areas I feel best about.

I may not make the most profit ever by following such a conservative approach, but I know I won’t be losing money either. And seeing as my goal is to make money to fund a college education, I can’t afford to be losing money too often. Therefore, I won’t be deviating from my strategy any time soon—in both my stock market and my MTG market investments. To do so would be bad for business.

Sig’s Quick Hits

  • Want to play blue-black in Tiny Leaders? Don’t look to Star City Games, then—they’re all out of the only blue-black leader legal in the format: Sygg, River Cutthroat. They’ve been sold out of the creature for weeks now with that same $6.19 price tag. I’m waiting for the inevitable price bump.
  • Ad Nauseam strategies seem to be showing up a little more frequently in Legacy top eights since the banning of Treasure Cruise. Perhaps this is why Lion’s Eye Diamond is once again sold out at SCG with a price tag of $86.29. As long as it doesn’t get banned, you could do worse than to pick up a copy or two in trade if you’re looking for a long-term investment beyond dual lands.
  • Need Rift Bolts for your Modern Burn deck? You’re not going to find any at Star City Games. Despite being reprinted a couple of times, the card is completely sold out at the major retailer. Prices range from $1.85 for the MMA copy to $3.99 for FNM and Time Spiral versions.